What are Large Cap Mutual Funds? – Features, Risk and Advantages
Large-cap mutual funds invest a considerable portion (a minimum of 80%) of their assets in the top 100 companies in terms of market cap. These organisations, also called blue-chip companies, feature an excellent repute and commendable track record of wealth generation. Thus, investors of these funds benefit from regular dividends.
Large-cap funds are also potentially less risky. So, investors seeking equity exposure along with stability can consider putting their money in these mutual funds. Here’s a detailed guide to large-cap funds, their features, benefits and how to invest in them. Read on!
Features of Large Cap Mutual Funds
1. Reliability
As a large-cap fund invests in stocks of top companies in India, one can expect steady returns and profits.
2. Wealth Generation Through Capital Investment
This is the primary objective of all mutual fund investors. A large-cap fund is ideal in this respect because they invest their corpus in markets of funding for a prolonged period. Therefore, they have a strong record of profit generation.
3. Lower Risks
The risk associated with large-cap funds is lower compared to other equity mutual fund schemes as large-cap funds invest in stocks of well-established companies.
Who Should Invest in Large Cap Funds?
Listed below are the details of the investors who will generally prefer to invest in large-cap funds:
- Large-cap funds are capable of withstanding bearish markets. So, investors who do not want their investments to fluctuate over time should ideally invest in large-cap funds.
- Investors who wish to include stocks of recognised and established companies in their overall investment portfolio should ideally invest in large-cap funds. These funds provide stability to an investment portfolio.
- Large-cap mutual funds carry much lower risk than mid-cap and small-cap funds. So, people who are risk-averse but want to take exposure to equities can consider investing in these schemes.
Why Invest in Large Cap Funds?
Detailed below are the reasons why you should consider investing in large cap funds:
1. Capital Appreciation
The prices of large-cap shares do not fluctuate much because they belong to well-established companies with a track record of generating profits. So, investors receive high returns over the years from their investments.
2. Stability of Investment
There is a negligible chance of large-cap funds dissolving as the blue-chip companies they invest in follow sound business strategies. As a result, there is consistency in growth and generation of revenue and income. Often, these companies provide dividends to their shareholders which contributes significantly to wealth creation in the long term. So, these funds lend stability to the overall portfolio.
3. High Liquidity
The fact that large-cap equities offer high liquidity, is one of its major advantages. This feature makes it easy for fund managers to restructure the entire investment portfolio without incurring any major losses in adverse market conditions. Moreover, fund managers are also able to purchase and sell large-cap stocks whenever they deem it necessary to increase returns.
4. Ability to Withstand a Market Slump
Large-cap funds are safe and secure investment options that can take investors through all kinds of economic turbulences without wiping their gains. Financial experts have observed that historically, these funds thrive during bullish markets. However, if these schemes do get affected by market movements, they can recover quickly.
5. Portfolio Diversification
Multi-sectoral diversification is another important benefit offered by large-cap funds because they invest in blue-chip companies across various sectors. You do not have to invest separately in multiple sectors or track them separately.
6. Informed Investment Decision
It is not difficult to procure financial statements, profitability and information related to the operations of large-cap funds because these schemes invest in companies that have been operating for many years. It helps investors minutely analyse details and formulate better investment decisions.
How to Invest in Large-cap Funds?
Detailed below are the steps to invest in large-cap funds:
- Decide on your investment objective and tenure and evaluate your risk profile.
- Conduct sufficient market research to choose the large-cap fund most suitable for your investment needs.
- Visit the official website of the fund house offering the scheme and register with your personal details.
- In the Mutual Fund section, navigate to your chosen large-cap fund and click to proceed.
- Complete formalities associated with e-KYC using PAN, proof of identity and address and submit the financial details as required.
- Choose the tenure and investment mode, i.e. select whether you wish to invest in the mutual fund via SIP (Systematic Investment Plan) or lump-sum amount. Finally, transfer the amount to start your investment.
Risks Associated with Large Cap Funds
Large-cap equity funds come with a certain degree of risk as follows:
1. Market Risk
Due to several geopolitical and economic factors, markets are exposed to the risk of underperforming. However, the risks are relatively low compared to mid and small-cap funds.
2. Concentration Risk
While investing predominantly in the stocks of a specific sector company, there are chances of losing money. However, large-cap funds invest in stocks belonging to different sectors, which mitigates portfolio risk.
3. Liquidity Risk
This can occur if the fund manager is unable to sell securities at a profit due to a lack of buyers.
Final Word
Evidently, you can provide your portfolio with a massive boost by investing in large-cap funds. However, make sure to analyse your short-term and long-term financial needs before making a decision. Furthermore, make sure to assess your risk profile before allocating your savings to these funds.
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FAQs
Large-cap mutual funds are subject to capital gains tax. Capital gain is the profit your earn from redeeming the mutual fund units. The tax rate typically depends on the holding period. If the holding period is up to 1 year, you will have to pay short term capital gains tax at 15%. Meanwhile, the long term capital gains are not taxable if the amount is within Rs. 1,00,000. A tax rate of 10% is applicable on LTCG exceeding Rs. 1 lakh.
Large-cap funds are known to be safer than mid and small-cap funds because of their capacity to withstand a bearish market. Thus, with a medium to long-term investment horizon, these funds can deliver high returns.
One of the many advantages of mutual fund investment is that you do not need to have a huge corpus to start investing. You can start allocating your funds to a large-cap scheme via SIPs with an amount as low as Rs. 100.
No, large-cap mutual funds do not have a lock-in period. Investors can redeem their units in a large-cap scheme at their convenience. They simply have to place a request with the asset management company to redeem their units.
Large cap mutual funds invest in the category of companies that are the largest in market capitalisation. This means these funds invest in assets of companies with an established market presence and a record of delivering steady earnings. Large cap funds offer regular and stable returns and are less risky investments than small and mid cap funds.
Investors who have long-term investment plans can invest in large cap mutual funds. They tend to offer stable returns over a long span of time. However, they usually cannot bring higher ROI than small and mid cap mutual funds.
Large cap funds invest only in the stocks of the top 100 companies. Meanwhile, multi cap funds invest in large, mid and small cap funds. In terms of returns, large cap mutual funds tend to hold an edge over multi cap funds.
Some of the best large cap mutual funds you can invest in 2023 are as follows:
-SBI Bluechip Fund
-HDFC Index Nifty 50 Fund
-Canara Robeco Bluechip Equity Fund
-Kotak Bluechip Fund
-Invesco India Large Cap Fund
Large cap mutual funds are comparatively less risky than small cap and mid cap funds. Large cap funds perform well in bearish markets as a result, investors do not have to worry about massive losses while investing in these funds.
Best large cap mutual funds for SIP investments are as follows:
-Nippon India Large Cap Fund- Direct Plan- Growth
-JM Large Cap Fund (Growth)
-Edelweiss Large Cap Fund- Direct Plan- Growth
-Union Large Cap- Direct Plan- Growth
-Mirae Asset Large Cap Fund- Direct Plan- Growth
From a portfolio diversification point of view, flexi cap funds invest in stocks across market capitalisation, unlike large cap funds. Flexi cap funds invest in large, small and mid cap stocks and thus, they may offer slightly better returns than large cap funds.
The names blue chip and large cap funds are used interchangeably for the top 100 companies that offer regular returns. Therefore, these terms are synonymous with one another.
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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
