What Are Mid Cap And Small Cap Stocks?
Mid cap and small cap stocks are often identified as emerging companies which have potential to grow and become large cap.
This is a series of explainers to educate and inform new investors. In association with Dun & Bradstreet India as knowledge partner.
Mid-cap And Small-cap Stocks: Definition, Meaning & Basics
Stocks are categorised as large cap, mid cap and small cap on the basis of their market capitalisation.
Securities market regulator, SEBI laid down criteria for classification of stocks as large, mid and small cap in 2017. As per the classification, mid cap stocks are those companies that rank 101st -250th in terms of full market capitalisation, while small cap stocks rank 251st onwards in terms of full market capitalisation.
Mid cap and small cap stocks are often identified as emerging companies which have potential to grow and become large cap. These companies are smaller in size, lesser known and hence often have limited or sparse analyst coverage. This may lead to opacity of information and a high risk, high potential return profile.
Stock exchanges create indices based on these stocks. For instance the S&P BSE MidCap Index or the S&P BSE SmallCap Index. The NSE also has similar such indices - Nifty Midcap 50.
Mid cap and small cap stocks are also used by mutual funds as underlying assets to create specific schemes for those investors who are willing to take on relatively higher risk.
Visit the Financial Terms section for more.