Small cap mutual funds, as defined by SEBI and AMFI, primarily invest in companies ranked 251st onwards in terms of market capitalization. They offer high growth potential as they invest in smaller, growing companies that could yield high returns. Moreover, they can uncover undervalued stocks that are often under-researched. Small-cap funds also bounce back quickly from economic downturns due to their adaptability. However, they have drawbacks like high volatility, and liquidity risk, and require a longer investment horizon. Although they carry significant risk, with informed decision-making, a clear understanding of the risk-reward paradigm, and guidance from skilled fund managers, they can contribute significantly to wealth creation.

Large-cap mutual funds invest in large, established companies, offering investors the potential for consistent returns and lower risk due to their stability and diversification across sectors. These funds, managed by professional fund managers, also offer high liquidity and the potential for regular dividend payouts. However, drawbacks include limited growth potential, as these mature companies operate at or near their peak in saturated markets. Also, they aren't immune to economic downturns and offer less control to investors over their investments. The suitability of these funds depends on an individual's financial goals, risk tolerance, and investment horizon.

  1. Money market mutual funds invest in short-term, high-quality debt instruments, aiming to maintain a stable value.
  2. Advantages include safety and stability due to high-credit-rating investments, high liquidity with typically penalty-free withdrawals, diversification across various debt instruments, and modest interest earnings.
  3. Disadvantages encompass lower returns compared to riskier investments, lack of government insurance, vulnerability to inflation risk, management fees that can eat into returns, and the potential for negative yields in periods of extremely low or negative interest rates.