Investing in large-cap mutual funds is a safe bet for investors. Large-cap mutual funds invest in top 100 companies that provide regular returns. They are low-risk and perfect for risk-averse investors. If you want to start investing in these mutual funds, you must make an informed decision. Check out this list of the 10 best large-cap mutual funds of 2023, how they work and their benefits. Read on!
Top 10 Large Cap Mutual Funds you Can Consider Investing in
While you are searching for the best large-cap fundsto invest in, you must have come across well-established companies with an unmatched performance track record over time. The shares of these companies are also known as blue-chip stocks.
*Disclaimer – This table is for educational purposes only. Mutual Fund investments are subject to market risk. Read scheme-related documents carefully before investing.
Features of Large-Cap Mutual Funds
Here are some of the important features of large-cap funds:
Due to their high reputation, performance, reliability and large-scale companies are a safe haven for investors in times of market recessions.
Investing in large-cap funds tends to be less risky than investing in other equity funds.
Although investing in large-cap investments is subjected to market risks, they usually do not take a sudden dip.
Even if large-scale losses happen, large-cap companies have a high chance of making a recovery.
Investing in large-cap funds provides stable and high returns in the long run.
Benefits of Investing in Large-Cap Mutual Funds
Large-cap mutual funds remain relatively unaffected by market instability. Therefore, it is a more credible form of investment than small or mid-cap mutual funds.
Other important benefits of investing in large-cap mutual funds are discussed below.
1. Safe option for first-time investors
Large-cap stocks are usually a safer bet compared to other types of equity investments. If you are investing in mutual funds for the first time, investing in large-cap funds is a wise choice.
2. Less affected by a bear market
The long-term track record of large-cap stocks getting steady returns adds to their advantage. They not just offer large profits during the bull markets but also offer a safer investment option in bear phases of the market.
3. Better appreciation and returns
Large-cap Investments show the potential to generate attractive returns in the long run. As these investments are done in high-performing companies, the stock prices do not show much fluctuation. In the long run, these can show better capital appreciation for investors than other stocks.
4. Offers growth along with stability
Large-cap funds provide an opportunity for growth in investors’ portfolios. These also assure stability in returns.
5. One can make an informed decision
Since these large-cap companies have a very long and reputed history of service, making an informed decision is easy. One can find relevant data about the stocks and plan their investment.
Tax Implications on Large Cap Funds
The tax implication on large-cap funds depends on the holding period. The tax implications are stated below:
When redeemed before the span of 12 months, profits will be classed as short-term capital gains (STCG) and taxed at a 15% rate.
When the holding period is 12 months or more and the capital gain is up to Rs.1 lakh, the gains will be exempt from tax.
If the holding period is 12 months or more and the gains are over Rs.1 lakh, long-term capital gains (LTCG) tax will apply at a 10% rate without indexation.
Who Should Invest in Large-Cap Mutual Funds?
Investing in the best large-cap mutual funds could be a safer bet than investing in small-cap funds, primarily due to the risk factor. Irrespective of that, you should invest keeping these factors in mind – your goal, risk appetite and investment horizon. Here are a few key points to consider before investing in large-cap mutual funds:
1. Investors who are Starting Out in their Investment Journey
The top companies in India are well-established and reliable compared to other companies in the market. By investing in a large-cap fund, you become a part-owner of these companies. Since these companies have a high reputation in the market, the risk involved is relatively moderate.
2. Individuals Looking for Steady Returns
Large-cap companies across various sectors have robust business models, solid supply chains and considerable market share. Therefore, these can withstand market fluctuations better than mid-cap or small-cap companies.
3. Investors Prefer a Solid Core Portfolio
It is ideal to have large-cap funds as a core part of your portfolio because of their ability to generate steady returns owing to relatively lower price fluctuations.
For investors who are seeking equity exposure with lower financial risk, an index fund, for example, the Navi Nifty 50 Index Fund might be an option worth considering. This fund invests in the top 50 companies of India and aims to fetch you steady returns throughout your investment journey.
Things to Consider Before Investing in Large Cap Mutual Funds
Although large-cap mutual funds are safer than other equity funds and offer chances of high returns, you should consider a few essential factors before investing. To make an informed decision, here are some of the parameters you should look into:
1. Investment objective and financial goals
Before opting for a mutual fund to invest in, an investor will want to be sure if it suits his/her financial objectives. Large-cap investments are suitable for first-time investors or those looking for equity investments with relatively low risks.
One should also be sure of how much time he/she wants to stay invested. For large-cap mutual funds, the minimum recommended investment horizon is three to seven years. If you are up for a long-term investment, large-cap investments are a suitable choice.
2. Past performance and consistency
It is necessary from the investors’ end to look into the past performance of the large-cap funds they are interested in. They should compare a fund’s performance with its peers before investing in one.
You should also remember that a fund performing excellently in the past might show a decline in the volatile market. However, if the fund has maintained a consistent record, there are chances of fruitful results.
3. Expense ratio
The percentage of the total assets payable to a mutual fund is its expense ratio. As per SEBI mandates, fund houses cannot charge an expense ratio over 2.25%. Checking the expense ratio before investing is a vital step.
Look for large-cap funds with a lower expense ratio; else you might lose part of your returns in paying the expense ratio.
4. Exit load
Exit Loads are charged to discourage investors from redeeming their funds before a certain period. For example, a fund house can charge a 1% exit load for a period of 12 months. If you are investing for a shorter period, check that the exit load structure of your scheme is favourable for you.
While investing, you should make sure that you do not need the money urgently. Redeeming before a certain period leads to the exit load being deducted from your returns.
You need to consider certain financial ratios to evaluate these mutual funds. They are as follows:
1. Sharpe Ratio
This measures the risk-adjusted return of a mutual fund scheme. You can use this formula to compute it:
Sharpe ratio = (Mean portfolio return-Risk free rate)/Standard deviation of portfolio return.
2. Standard Deviation
By using standard deviation, you can measure the deviation of a set of data from its mean or average.
This indicates a fund’s changes to the correlated market movements.
It determines how close a fund’s returns are to that of the benchmark index.
This measures a fund manager’s ability to generate profits when the benchmark is at a profit.
Large-cap mutual funds come with decent returns and relatively lower risks. These funds can be a nice stepping stone to your investment journey. However, to grow your money significantly in the long run, diversify your investments. But make sure to do a thorough research of the market so that you can invest diligently at minimal risk.
If you want to unlock the power of passive investing, visit Navi Mutual Fund and explore a host of mutual funds.
FAQs on Best Large-Cap Mutual Funds
Q1. What are the different types of market caps?
Ans: The different types of stocks are as follows: Small-cap stocks: Equity shares of companies that have a market capitalisation of less than Rs. 5,000 crore. Mid-cap stocks: Equity shares of companies whose market capitalisation ranges from Rs.5000 crore up to Rs.7000 crore. Large-cap stocks: Equity shares of companies whose market capitalisation ranges from Rs.7000 crore to Rs.20000 crore.
Q2. How long should I stay invested in large-cap funds?
Ans: The investment horizon of individuals depends on their financial goals. That said, one might want to stay invested for as long as possible to benefit from the power of compounding.
Q3. Are large-cap funds safe?
Ans: Large-cap mutual funds are comparatively safer than other equity investments because they can withstand falling markets. Also, individuals with a long-term investment horizon can expect stable returns.
Q4. Is a large-cap mutual fund high risk?
Ans: As large-cap funds invest in equity and equity-related instruments, they are affected by market fluctuations. However, they are less risky than other equity funds because they invest in companies with an outstanding track record.
Q5. Which is better, a large-cap or mid-cap fund?
Ans: Large-cap funds come with stable returns but have less growth potential due to the size of the companies. That said, mid-cap and small-cap funds can offer higher returns. Furthermore, they have better growth potential.
Before you go…
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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.
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