Small-Cap vs Large-Cap: Which Mutual Fund is Right for You?
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Investing in mutual funds is a popular choice among Indian investors seeking to diversify their portfolios. Among the various options available, small-cap and large-cap funds stand out for their distinct characteristics and different risk-reward balances. Understanding the nuances between them, especially concerning short term capital gains tax , can aid in making an informed decision. **Small-Cap Mutual Funds** invest primarily in companies with a smaller market capitalization, typically those ranking beyond the top 250 companies in terms of market value. These funds are known for their high growth potential and consequently, higher risk. Investors often prefer small-cap funds with the expectation of significant returns in a shorter period. However, if the investment horizon is less than three years, taxes play a crucial role. Profits earned within this timeframe are subject to short term capital gains tax at a rate of 15%. For example, if an investor makes a profit of ₹100,000...