Large cap Mutual Funds

Large-cap mutual funds are equity funds investing around 80% of the entire corpus in top-performing companies on the basis of market capitalisation. When investing in equity mutual funds, choosing the right scheme plays a crucial factor. 


You need to analyse the performance of the fund and select the right fund house that can help you generate potential returns on the invested amount. One another critical element to analyse is the size of the company or its market capitalisation.

Based on this parameter, equity mutual funds are categorised into various types, such as large-cap, small-cap, mid-cap mutual funds, etc. Before investing in large-cap funds, you need to understand the key features and other essential parameters of these funds.

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Features of Large-cap Mutual Funds

As mentioned, large-cap equity funds are primarily invested in companies having a large market capitalisation. Investing in such funds is ideal for those investors looking for moderately to high-risk appetites in the stock market with an investment horizon of a longer period.


As per the Securities and Exchange Board of India (SEBI), it is prudent to invest at least 80% of the corpus in equity shares of the top 100 companies. The companies are categorised in the top 100 sectors on the basis of market capitalisation. 


Here are a few essential characteristics of large-cap mutual funds:


  • Companies listed under these funds are typically one of the top-performing ones in their respective industries

  • Funds are invested in companies displaying excellent track records, financial stability, brand recognition, etc.

  • Large-cap funds offer stable returns and can withstand economic turmoil

  • Ideal for investors willing to grow wealth without exposing their corpus to high market volatility

  • Capital gains are taxed at 15% for a holding period of less than 12 months

  • Taxation on capital gains of more than ₹1 Lakh at 10% if the holding period exceeds 12 months

  • Secure investment option compared to a small-cap or mid-cap fund, as these have high stability and liquidity

Benefits of Investing in Large-cap Equity Mutual Funds

When you opt for large-cap equity funds, here are a few advantages you stand to earn.


  • Stability


As large-cap funds focus on top-performing companies, these firms display stable financial growth and offer consistent revenues. As these funds provide higher stability and remain undeterred by market fluctuations, your invested corpus can generate better returns. 


  • High Liquidity


Another major advantage of investing in these funds is that they offer sufficient liquidity. Thus, you can easily liquidate them when required without incurring major losses. 


  • Better Diversification Across Various Sectors


The large-cap segment offers better diversification as your corpus is invested in blue-chip or top-performing companies. There is also no need to invest across varied sectors or monitor the individual performance of a company in large-cap mutual funds.


  • Higher capital gains


When compared to small-cap, multi-cap or other fund types, these large-cap funds provide better capital appreciation. This is primarily because companies included in these funds deliver returns consistently. 


Thus, the mutual fund unit price also does not fluctuate rapidly. Investing in these funds can help you generate better returns over the long term.

Key Parameters to Consider When Investing in Large cap

Given that large-cap funds may offer higher liquidity and better stability, you need to exercise caution when choosing a particular fund type. Most investors may also opt for large-cap index funds, as they are one of the safest investments you can purchase in the stock market.


Here, large-cap indices such as SENSEX, NIFTY 100, NIFTY 50, etc are the key elements. The choice of whether to go for large-cap blue-chip funds or index funds entirely depends on your financial objectives and goals. 


To that end, here are a few essential factors to consider before investing in large-cap mutual funds. This helps you analyse some of the best large-cap mutual funds in the market and make informed decisions.


  • Assess the Performance of the Fund


It is critical to gauge the risk factor and evaluate the returns you stand to gain from these mutual funds. Checking the NAV or Net Asset Value helps you understand the performance of a particular fund. 


When compared to other fund types, such as small-cap and mid-cap, the NAV of large-cap funds does not show drastic fluctuations. Hence, you can add stability to your investment portfolio.


That said, while the returns of these funds are stable, they are comparatively lesser than small- or mid-cap funds. Thus, you can invest in such funds when you desire stable returns with a lower-risk factor. 


  • Evaluate the Investment Horizon


Another critical factor to consider when investing in mutual funds. There may be instances when large-cap funds can underperform due to fluctuating market conditions. After all, the returns from mutual funds are always subject to market risks.


However, when you choose a lengthier investment timeline, poor performance may average itself throughout the duration. This is because you are investing in financially stable organisations. 


So, if you are looking to invest for a longer duration, opting for a large-cap mutual fund may be an ideal alternative.


  • Understand Your Financial Goals


If you are someone looking to generate a stable income post retirement, you may opt for these funds. Since these funds deliver consistent returns and have a manageable risk level, investing in such funds may benefit you.


  • Analyse the Expense Ratio


An expense ratio is defined as the total cost normally charged by fund houses for managing your investments. This indicates a portion of the total assets of a fund, which is used for various fund management functions.


SEBI mandates that mutual fund houses are not allowed to charge expense ratios higher than 2.50%. Thus, when choosing a large-cap fund, you need to opt for one with a lower ratio, helping you maximise your returns.


In a nutshell, opting for large-cap mutual funds is preferable for all novice investors who have just ventured into the mutual fund investment journey. Ideally, investing in these funds can result in better capital appreciation over the long term. 


Ensure to choose a lengthier timeline ranging from 5 to 7 years for a better risk appetite and manage volatile market scenarios. This way, you can withstand bearish market conditions while earning consistent returns.

FAQs on Large-cap Mutual Funds

Who can invest in large-cap funds?

These funds are ideal for risk-averse investors new to the stock market and planning to invest for a long-term investment horizon.

Are there any risks associated with large-cap mutual funds?

What are some of the best large-cap mutual funds in India?

What are the various taxes applied on large-cap mutual funds?


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