Nifty Smallcap 250 vs. Nifty Midcap 150: Which is a Better Investment Option?

Published on: Wed Mar 15 2023

Nifty Smallcap 250 vs. Nifty Midcap 150: Which is a Better Investment Option?

Investing in the stock market is always a difficult task, particularly for those new/unfamiliar to the world of finance. Choosing the best investment avenue can be difficult with so many options available. The Nifty Smallcap 250 and Nifty Midcap 150 are two popular investment options in India. In this blog post, we will compare these two indices to see which one is a better investment.

Nifty Smallcap 250

The Nifty Smallcap 250 index includes 250 small-cap companies that are listed on India's National Stock Exchange (NSE). The market capitalization of these companies is less than Rs. 5,000 crores. Small-cap companies are those with a market capitalization of less than Rs. 5,000 crores and are new to the market. They have the potential for rapid/fast growth, but they also carry higher risks because they are frequently untested.

Nifty Midcap 150

The Nifty Midcap 150 index is made/composed up of 150 NSE-listed mid-cap companies. These firms have a market capitalization ranging from Rs. 5,000 crores to Rs. 20,000 crores. Mid-cap companies typically have a market capitalization of Rs. 5,000 crores to Rs. 20,000 crores. They are relatively established in the market, but there is still room for expansion.

Comparison

The Nifty Smallcap 250 and Nifty Midcap 150 indices are used as benchmarks for small-cap and mid-cap company performance, respectively. There are, however, some significant differences between the two that investors should be aware of before making an investment decision.

Risk

Because of their small size and lack of a track record, small-cap companies are generally regarded as riskier than mid-cap companies. They have a higher potential for growth, but they are also more volatile and susceptible to market fluctuations. Mid-cap companies, on the other hand, are more established in the market and have a proven track record, making them less risky than small-cap companies.

Returns

Because of their potential for rapid growth, small-cap companies have the potential to give/provide higher returns than mid-cap companies. They may, however, experience greater volatility, which can result in significant losses for investors. Mid-cap companies, on the other hand, provide relatively stable returns with moderate growth potential.

Liquidity

The ease with which an asset can be bought or sold in the market is referred to as liquidity. Smaller companies may have less liquidity than larger companies, making it more difficult for investors to buy or sell shares quickly. This can result in wider bid-ask spreads and higher transaction costs. Mid-cap companies, on the other hand, have higher liquidity, making it easier for investors to buy and sell shares quickly.

Diversification

Diversification is the practise of investing in a wide range of assets in order to reduce risk. Small-cap companies are less diversified than mid-cap companies, which raises/elevates their risk profile. Mid-cap companies are typically more diversified, which can help investors reduce risk.

Which is a better investment option?

The decision between the Nifty Smallcap 250 and the Nifty Midcap 150 is ultimately determined by an investor's risk tolerance, investment goals, and time horizon. If an investor is willing to take on more risk in exchange for the possibility of higher returns, the Nifty Smallcap 250 may be a better choice. If an investor is looking for more consistent returns with moderate growth, the Nifty Midcap 150 may be a better choice.

Returns are subject to market risk.

Past performance do not assure future returns.

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