Here’s a quick 101 of investing to explain what caps are and how they are categorised by SEBI. A quick ready for busy professionals to brush up on the basic’s without needing a finance degree.
Cap Categories
Large-cap stocks are the top 100 companies based on the valuation of their size following market capitalization (read below). These are companies that are typically stable and industry leading for their sector due to the large size of their valuation which is generally above Rs20,000cr. Their low risk which means you may not get high growth compared to a mid or small-cap. You can consult a Cube Wealth Coach or download the Cube Wealth App.
Mid-caps are companies ranking from 101st to 250th with valuations typically ranging Rs5,000-20,000cr. Higher risk than a large-cap but not as risky as a small-cap.
Small-caps are companies ranking from 251st onwards. Small-cap have much smaller value and are more volatile because they don’t have dominance in the market like a large cap. The opportunity for growth is high which makes them appealing for investors. And like most high growth opportunities, there is also high risk.
How Caps Are Determined?
Caps are determined by Market Capitalization. Sound scary? It’s a simple math calculation where the overall objective is to help size a company for it to be assigned a cap category.
Market capitalization refers the total market value of a company’s outstanding shares. It is calculated by multiplying a company’s outstanding shares with the current market price of one share. You can consult a Cube Wealth Coach or download the Cube Wealth App.
But what’s an outstanding share? It’s all shares currently owned by stockholders, company officials, and investors in the public domain.
Ready for the formula?
Market Capitalization = (Total no of outstanding share) * (Price of one share)
Let’s add some numbers for context.
Company A
Total number of outstanding shares= 50,00,000
Current price of 1 share= Rs 50
Market capitalization = 50,00,000* 50 = Rs 25,00,00,000
The market capitalization of company A is Rs 25 Crores making it a large-cap.
See? Not so tricky after all.
FAQs
1. What is market capitalization (market cap)?
Ans. Market capitalization, or market cap, is a financial metric that represents the total value of a publicly traded company's outstanding shares of stock. It is calculated by multiplying the company's stock price by the number of outstanding shares. Market cap is often used to categorize companies as large-cap, mid-cap, or small-cap.
2. What are interest rate caps in lending?
Ans. Interest rate caps in lending refer to restrictions on how much the interest rate on a loan can increase over time. They are commonly used in adjustable-rate mortgages and help protect borrowers from significant interest rate hikes.
3. Are government spending caps common in fiscal policy?
Ans. Government spending caps are occasionally used in fiscal policy to limit government expenditures. These caps are designed to control budget deficits and ensure that government spending does not grow beyond a certain predetermined limit.
4. What are data usage caps in internet plans?
Ans. Data usage caps in internet plans refer to the maximum amount of data that a customer can use within a billing cycle. Internet service providers may impose these caps to manage network traffic and offer different pricing tiers based on data usage.
Conclusion
The talk about "caps" encompasses a wide range of contexts and concepts, often related to setting limits or boundaries. In various fields, such as finance, lending, fiscal policy, and telecommunications, caps serve different purposes and can impact individuals and businesses in different ways.
Cube Wealth Investment Quotes
My two rules of investing: Rule one – never lose money. Rule two – never forget rule one. – Warren Buffett
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