Large Cap Mutual Funds

About Large Cap Mutual Funds

Large cap mutual funds are equity funds that invest mainly in the top 100 companies of India. Being some of the most renowned organisations in India, the majority of the Indian population uses their products daily. Hence, such companies own a huge market share.

Furthermore, these funds invest most of their corpus in large cap companies. Businesses with a market cap of Rs. 20,000 crore or more are considered to be large-cap stocks.

How do Large Cap Mutual Funds work?

If you want to invest in large players in the Indian stock markets, you may consider investing in certain large-cap mutual funds that invest your money predominantly in the equity of large-cap companies. These companies have the distinction of being among the top-tier 100 companies in the Indian ecosystem of industries. You could say that these companies are famous for their growth and expansion potential and for their upstanding credibility over the years. These are the companies whose products and services are in use on a daily basis in the Indian diaspora.

Large-cap mutual funds work by investing your capital in the equity of large-cap companies with a market capitalisation of ₹20,000 crore or over. The aim of these mutual funds is to seek capital appreciation for investors with a long-term perspective of investment. Conservative investors may invest in such funds as they prompt investment for the long haul, aiming at the achievement of returns of large-cap companies that may tide over market volatility.

Features of Large Cap Mutual Funds

Investors should note that large cap funds are also susceptible to market risks. Hence, they must consider the factors that might impact their investments and returns. Factors such as the investor’s age, goals, associated risks, and investment horizons should be considered before concluding.

1. Risk and Return: As all equities are affected by market fluctuations, so does the NAV (Net Asset Value). Although there are fluctuations, these movements may not be as considerable as with mid and small-cap funds. Hence, investing in the best large cap mutual funds can offer stability to your portfolio.
2. Analysing the expense ratio of the scheme: The expense ratio refers to the fees charged by the large cap fund houses to manage the investments. Hence, as a best practice, it is better to look for fund houses with a lower expense ratio for maximised returns. But expense ratio should not be the only deciding factor.
3. Long term investments: Despite being more stable, large cap mutual funds are also susceptible to market volatility, which may lead to underperformance at times. Hence, investors who are looking to invest for the short term may not find promising returns. Therefore, large cap mutual funds are well-suited for investors who look to invest for the long term.
4. Considering financial goals: Despite being exposed to market risks, large cap funds also offer stable returns. Hence, this is one of the reasons why investors may often prefer it for their retirement plans. These funds can also be ideal for novice investors who want to gain market exposure without taking high risks.
5. Long-term investment: Investors wishing to experience large-cap mutual funds’ full potential should ideally stay invested for 5-7 years. The long-term horizon balances out short-term underperformance and thereby ensures stable returns. Hence, large-cap funds are ideal for generating long-term wealth.

Advantages of Investing in Large Cap Mutual Funds

Some of the advantages of investing in large-cap funds include:

1. Stability: Since large cap funds have a higher market share and are relatively less volatile, these firms offer more stability and a consistent income. All these factors make it a safer investment option. Besides, it can also give higher returns than short-term debt funds.
2. High rate of liquidity: Large cap funds offer a high rate of liquidity in bear markets. In volatile markets, investors can easily liquidate their portfolios for minimised losses. Additionally, fund managers can maximise their returns by buying and selling stocks when required.
3. Diversification: Besides the benefit of having options to invest in India’s leading companies, large cap funds are likely to withstand the market volatilities better than a mid or small cap fund. Thus, it could give your investment portfolio stability during market volatility. However, it is vital to note that diversification does not promise investment returns to eliminate the risks of loss.
4. Capital appreciation and dividends: Given the above-mentioned factors, large-cap funds are more likely to offer benefits for an investment period of 5-7 years. In mutual funds, capital appreciation occurs when the value of your investment increases. Certain large cap funds may also offer regular dividends because of their consistent profit generation. Note that the dividends are added to your overall income and taxed as per the applicable slab rate. It is also subject to a 10% TDS in case it exceeds Rs. 5000 in a financial year.

Top 5 Large Cap Mutual Funds

The following are the top  Large-Cap Funds in India: