Large-cap mutual funds predominantly invest in companies with large market capitalization or large-caps. These are typically leading companies in their respective sectors with strong fundamentals, stable growth and operations at scale. Large-cap companies generally have a market capitalization of over Rs 20,000 crore. Some examples are Reliance, HDFC Bank, Infosys, TCS, HUL, ITC etc. Large-cap funds aim to provide stable returns by investing mostly in such established and fundamentally strong large blue-chip companies.
Benefits of large-cap equity funds
Large-cap funds provide relatively more stable returns compared to mid-cap and small-cap funds since they invest in mature large companies that are less volatile. This makes them suitable for risk-averse investors.
These funds invest across sectors and companies providing adequate diversification within large caps. This contains overall portfolio risk.
Large-cap funds predominately invest in actively traded large companies. This ensures ease of liquidity at any given time.
Large-cap companies have lower business risk which translates to lower stock price volatility and more stable fund returns.
Though large-cap returns are modest, investing systematically over the long-term leads to steady wealth creation.
Things to consider when selecting a fund
Some key parameters to evaluate when selecting a large-cap equity mutual fund
Long term performance – prefer funds with consistent returns over 5-10 years
Risk-return profile – choose funds that have provided higher returns for the level of risk taken
Portfolio composition – funds with sector diversification and quality stock holdings
Fund manager profile – funds managed by experienced managers with long tenure add stability
AUM size – funds with larger assets indicate investor confidence
Expense ratio – opt for funds that have lower expense ratios
Suggested investment tenure
The ideal investment horizon for large-cap equity funds is 5 years or more. These funds focus on established companies and can be expected to provide index-like returns over longer periods. While short term underperformance may happen, large-cap funds tend to bounce back over longer durations of 5+ years. Hence, align your goals accordingly.
Suitable investment objectives
Large-cap funds are best suited for goals with a low to moderate risk appetite and investment timeframe of 5 years or longer, such as:
- Retirement planning
- Children’s education
- Buying a house
- Building a corpus for expenses after retirement
- Wealth creation through Systematic Investment Plans (SIPs)
- Avoid if seeking very high returns
Large-cap funds predominantly invest in mature companies with steady growth. While they offer stability, the upside potential is limited compared to mid-caps and small-caps. Hence, these funds may not be suitable if your objective is to earn very high returns by taking on more risk. Other categories like multi-cap or mid-cap funds may be more appropriate in such cases.
As per general thumb rules, 25-50% of your equity allocation can be directed towards large-cap funds. This provides stability while the balance is invested in multi-cap or mid-cap funds for higher returns. The exact allocation depends on your risk appetite and investment horizon. Consult your financial advisor to decide appropriate large-cap fund allocation as per your goals.