If you’ve heard about small-cap stocks and are wondering what they are and how they work, we’ll talk about them in this article.

What are Small Cap Stocks?

To understand small caps, we need to first understand what “cap” stands for. Market Capitalization is a simple metric to measure the size of a company. Simply put, the value of all the company’s outstanding shares is its market capitalization.

[Market Capitalization = Total number of outstanding shares of the company x Current share price]

Now, in India, companies that have a market capitalization of less than ₹5,000 crores are called small-cap companies. In the US, small caps are categorised as companies with a market cap between $300 million to $2 billion.

These small-cap companies are smaller in size, operations and revenues but they are not necessarily startups or new firms. Often, these could be old mature companies with great business models.

For more information on the features of small-cap investing, refer to the Jama Wealth Blog.