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Large Cap Mutual Funds: Meaning & Selection

Investors who are very cautioned and mostly who are new to the Mutual funds market, prefer investing in schemes that will help them grow their assets without much risk and volatility.

And if your thought process is to invest risk-free; Large-cap mutual funds are the right match for you. Compared to Mid and small-cap funds, large-cap mutual funds are one of the safest equities investments which have good returns and close to nil volatility to market fluctuations.

There are perks and risks in equity investment; Even though the share values of blue-chip organizations are skyrocketing, they still investors are preferring to stake funds in Large cap mutual funds.

Large-cap companies are defined on basis of reputation and reliability. Usually, these companies have a great track record and are well-established in their niche market.

“Slow and steady” is the motto of large-cap companies with a very robust governance process in place. ​And if you choose to invest in Large-cap companies with prospects of 5 to 7 years, these structures may help you to create capital over a long period without too much volatility.

What are Large Cap Mutual Funds

Going by its name, Large cap Mutual funds are investment schemes that capitalize on stocks/shares of large companies. It can be a great avenue for you if you want to enjoy the perks of equity investment but at the same time do not want to risk corpus with the market variation.

In India, SEBI (Securities and Exchange Board of India) has given the mandate to the Mutual funds market that all Large cap mutual funds schemes should have at least 80% corpus in top 100 companies by the market capitalisation. However, the rest of 20% can be invested in Mid or small-cap companies

When the market is in a volatile stage, these top 100 companies are leaders in their respective markets and are relatively consistent compared to other small companies. These companies are very ideal to invest and generate wealth over a period of time without taking risk or volatility to your corpus.

Most financial advisers recommend investment horizon of 5 to 7 years when choosing large-cap mutual funds. Given that risk-free returns. you should also keep in mind that the returns generated from the Large-cap mutual funds will be very modest.

Generating slow and steady wealth for the investors, these large-cap mutual funds schemes are most extremely followed in the market.

The below chart clearly implies that Large cap mutual funds provide much better returns over a period of time.

Mutual Funds Chart
Source: Crisil Research

How to Select Large-Cap Funds?

Now, let’s discuss the factors and parameters which you should keep in mind before you select any large-cap mutual funds.

It’s easy to choose between right and wrong schemes, but difficult to choose from many right schemes. Choosing the right large-cap mutual fund which will suit you is never easy.

Since large-cap mutual funds have a major corpus invested in the top 100 listed companies, there is close to zero chance of loss. However, you should be very prudent to choose the right large-cap mutual funds scheme which will suit your investing appetite.

So, let’s dive right in and look at the factors which should be considered before investing in large-cap.

Quantitative Factors

You might have come across many investors who would not recommend considering the past performance of mutual funds. However, you should consider past performance as a major factor while selecting a large-cap mutual fund.

Track record of the last 3 years, Mutual fund rating, fund age, expense ratio, and assets under management (AUM) are the major quantitative factors of large-cap mutual funds.

Also, it is important that the large-cap fund should possess over RS. 1000 CRs worth of net assets with 80% corpus of the funds should be invested in large-cap stocks.

Qualitative Factors

Once you have calculated the quantitative factors, you also need to analyze qualitative factors like Mutual fund reputation, studying the Fund manager’s historical performance and the investment process.

It is highly recommended to select a fund manager who has a great track record. AMC with a set established investment process is vital meanwhile this safeguards that it’s a process that gets you to make money rather than just a fund manager.

Why opt for Large Cap Funds

Hoping that you have got a clear understanding of the meaning and selection criteria of large-cap funds. Now let us see what are the major benefits you would gain by selecting large-cap mutual funds.

Higher Liquidity

Be it a recession or a small downturn in the market, all the investors flock toward large-cap funds. Let me tell you that it is not recession-immune, but the large-cap fund has a stronger withstanding power compared to mid and small-cap funds.

Being a safer investment option, make it a higher liquefiable asset. As there is a good demand for large-cap funds. Buying and selling large-cap stock settlements usually happen within a day or two.

Stable Returns

Large-cap companies are able to perform very well even in the volatile market, as it has a management panel of skilled and experienced finance professionals. These management panels make calculative and precise decisions that allow companies to surpass market fluctuations.

Also, the major reason large-cap funds are able to provide a stable return is that it has Lower leverage (Debt over equity ratio).

Lower Risk

As large-cap companies are highly diversified and profitable, there are very less opportunities for further growth. Considering this Large-cap companies pay dividends on their stocks and facilitate investors to have another source of income. Many investors vouch for the “Lower risk” factor as the prime advantage of investing in large-cap funds.

Ideal for Newbie Investors

“Never put all your eggs in one basket” referring to this metaphor means new investors should keenly diversify their investment portfolios to mitigate volatility. And Large cap funds are the best source to diversify and mitigate associated risks.

Many financial advisers and investment recommending panels do detailed research on large-cap funds and provide overall investment analysis on various horizons. This is easily assessed by the new investors and helps them decide on their future investments.

Top 5 Large-cap Mutual Funds in India

Before you peddle up let me show you the list of top 5 large-cap Mutual funds, which will give you a modest return with very low volatility.

Mutual Fund Name 3 year 5 Year
Kotak Standard Multicap Fund(G) 8.46% 13.38%
Mirae Asset India Equity Fund-Reg(G) 13.96% 18.65%
SBI BlueChip Fund-Reg(G) 8.76% 15.52%
ICICI Pru Bluechip Fund(G) 11.44% 14.24%
UTI Mastershare Unit Regular Plan Growth 9.61% 13.42%
Aditya Birla SL Focused Equity Fund(G) 10.24% 14.44%

Key Take Away:

If you are an Investors who are new to the market, then a large-cap mutual fund is the best match. Bearing in mind, the major corpus of this scheme is capitalized in Large cap portfolios with 1000 cores and above the capital.

As we know Large-cap companies are backed and goodwill also creates a major difference. Moreover, the Fund manager plays an important role in the performance of the mutual funds scheme, as they decide on the allocation of another 20% in mid or small-cap stocks.

This 20% of the corpus allocation can also give the scheme, the perfect balance to sustain the bear market as we know it can give a very higher return or sometimes forfeit the upcoming profit.

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