Where to invest? Mid Cap Funds or Small caps?
Normally Mid Cap Funds & Small cap Funds have near to similar challenges as well as opportunities. But when it comes to portfolio of stocks hold by Such funds, Mid caps pre dominantly invest in the Mid cap stocks with some protiuon in large caps as well as small caps. Small cap funds majorly invests in Small cap stocks but park some portion of the fund in midcaps.
SEBI defines a mechanical and quantitative standard in which the top 100 firms are classified as large-caps, the following 150 as mid-caps, and the remaining equity universe is classified as small-caps. However, that doesn't conclude that companies numbered 101 to 250 will always be in the mid-cap range. Even though SEBI has classified companies as mid-cap or small-cap, the features of those companies tend to remain unchanged. It holds promise if it is a small-cap but exceptional, well-managed, and fairly quickly developing business. So don't be too specific because the characteristics will stay unchanged.
When a mid-cap fund becomes very large, it tends to invest more in the larger mid-caps. Investing in companies ranging from 101 to 125, for example, may be classified as mid-caps, but they tend to be large caps, and they frequently enter the large-caps group and then return to mid-caps. So they may have more scalability, but nothing more.