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Fast Fact

Small-Cap Stock	Mid-Cap Stock
The companies ranked from the 251st position onwards in terms of market capitalization are known as small-cap companies. The market cap for these companies is below Rs.5000 crores. The mutual funds that hold stocks from the small-cap are called ‘Small-cap funds’.	SEBI established a rule in the year 2017, according to which companies that are ranked from 101 to 250 in terms of market capitalization are known as mid-cap companies. The market cap for these companies will be around Rs.5000 to Rs.20000 crores. Mutual funds that hold stocks from the mid-cap are called ‘Mid-cap funds’.
Small-cap companies don’t have a long track record. For example, a start-up company or a company that is under development can fall under the small-cap sector. These companies are mostly not included in the broad market indices because of their negligible market presence.	Mid-cap companies also have a good track record, but the difference is noticeable compared to large-cap companies. Mid-cap funds are involved with more risk than large-cap funds. Mid-cap companies may or may not be included in broad market indexes due to their limited market presence.
Risk Profile : Small-cap stocks are riskier than the mid-cap fund. Despite the risk, these stocks have great growth potential	Risk profile : Mid-cap are slightly riskier than large-cap stocks and less risky than small-cap stocks
Liquidity and volatility : Small-cap stocks are more volatile and have less liquidity	Liquidity and Volatility : Mid-cap funds have moderate volatility and moderate liquidity
Return : Despite being the highest-risk scheme, they offer very good returns. The average of the last 5 years has been 14.74%.	Return : The average returns of mid-caps from the past 5 years were around 10.28%. They offer better returns compared to large-cap funds.

Low cost

Inadequate liquidity

Broad bid-ask spread

Growth potential : Because these firms are smaller, they have more growth potential than large-cap enterprises. This means that investors in them stand to earn significantly.

Lower share price : Small-cap stocks frequently have lower share prices, making your first investment easier. Furthermore, mutual funds and hedge funds cannot artificially raise share values since restrictions prohibit financial institutions from investing extensively in them.

Various businesses : Small-cap firms are more than just start-ups. They may be found in various sectors, and many of them have been in operation for quite some time. This opens up a number of investment opportunities.

Less popular : Small-cap firms are less well-known than large- and mid-cap corporations since there is less popular information about them. This implies they are frequently underpriced and might deliver a good return on investment.

Volatile prices : Because they have less financial buffer than bigger enterprises, smaller companies respond more to market volatility. As a result, small-cap companies might experience large price volatility.

High risk : While small-cap firms have a lot of development potential, they also have a lot of failure potential. Small-cap stocks are more risky than large-cap equities. Companies with limited access to investment capital are more vulnerable to market shifts. As a result, they are a riskier investment.

Less available information : Small-cap firms receive less attention from financial institutions and analysts than large- and mid-cap corporations. As a result, before investing, you must have a thorough grasp of company value and the time to conduct your own research.

Low Liquidity : Because small-cap firms are smaller and less popular, their stock is less liquid. When a firm is less well-known, it might be more difficult to identify a seller when looking to acquire shares. It may also be more difficult to sell shares if you wish to abandon the market.

Earnings and revenue growth : Even if a firm isn't yet profitable, it should be expanding and increasing its revenue.

Price-to-earnings ratio (P/E ratio) : The P/E ratio compares the current share price to earnings per share to determine the worth of a company's stock.

Price-to-sales ratio : If the firm does not yet have earnings per share, the P/S ratio can be used to evaluate how it compares to comparable small-cap companies.