Large-cap companies are regarded as more trustworthy when compared to mid-cap and small-cap ones. Owing to such reputation and robust performance, more investors prefer investing in the stocks of large-cap companies. However, the answer to whether one should invest in large-cap mutual funds or not is more deep-rooted than it appears.
For instance, individuals not only need to possess in-depth knowledge about large-cap funds but also need to understand their financial goals and restrictions as investors.
What are Large-Cap Mutual Funds?
Large-cap mutual funds are those equity funds which invest money in blue-chip companies, i.e. companies with large market capitalisation. Consequently, they are also known as Blue Chip Funds. Typically, they are top 100 companies that are categorised as per their market capitalisation. ITC, Britannia, TCS, Reliance Industries, HUL, etc. are among the top large-cap companies in India.
Usually, these companies command a high reputation in the market and come with an exceptional record of wealth generation. It directly has a positive impact on their market performance, and the companies become less prone to risks of volatility. In turn, it benefits investors who park their money in funds of capital giants, like ICICI Prudential Bluechip Fund.
Features of Large-Cap Funds
Here are some significant features that would help ascertain whether to invest in large-cap mutual funds or not –
- Cost of investment: The cost of investing in large-cap funds is relatively high, and so is the Expense Ratio that is borne to maintain them annually. Notably, the upper limit of such fees is limited by SEBI’s mandate and cannot exceed 2.5% of average AUM.
- Risk factor: Large-cap mutual funds possess a moderate risk factor, especially when compared to both small-cap and mid-cap funds. It is mostly because the NAV of this mutual fund category is less exposed to the market fluctuations.
- Investment horizon: These funds are considered ideal for both mid-term and long-term investments. Typically, it takes about 3 to 5 years for the best large-cap mutual funds to generate substantial earnings.
- Taxation: The revenue generated by redeeming large-cap shares are capital gains. Consequently, revenue earned on shares that were held for a year is treated as STCG and is taxed at 15%. Likewise, revenue earned on shares held for more than a year is treated as LTCG and is taxed at 10% without indexation benefit.
Other than these, there is plenty of information available about the large-cap companies and their shares. Individuals can look up relevant data and determine whether is it good to invest in large-cap mutual funds or not.
Are Large-cap Funds a Good Investment Option?
The following benefits are among the prominent reasons to invest in large-cap mutual funds –
Helps to build a diversified portfolio
Blue-chip funds like BNP Paribas Large Cap Fund help investors to build a diversified investment portfolio that helps to generate sustainable returns throughout the course. Also, such funds come with professional expertise and are actively managed by fund managers to ensure maximum returns, while cushioning risks at all times.
Offers steady returns
The fact that large-cap funds invest in financially stable companies makes them capable of withstanding recessionary market phases. Nonetheless, the earnings generated through this mutual fund category is relatively low when pitched against the returns of mid-cap or small-cap mutual funds. Nevertheless, the best large-cap mutual funds enable investors to appreciate their capital and offer regular dividends to the investors.
Flexibility to route investment
Most blue-chip funds allow investors to choose the most suitable option to route their investment in. Based on their convenience and financial goals, investors can route their investments through plans like SIP, STP and SWP, among others.
Helps to meet financial goals
Typically, by staying invested for a significant number of years, individuals can expect substantial returns against their investment. The stable returns help investors plan and meet their mid-term and long-term financing goals.
Nevertheless, individuals should evaluate their capability as an investor before they decide to invest in large-cap mutual funds.
Who Should Invest in Large-cap Mutual Funds?
Large-cap funds are considered to be a fruitful investment option for those who wish to benefit from equity investments for capital appreciation. Also, it is suitable for those who are not much interested in earning fluctuating returns that are higher than the benchmark. Since blue-chip funds represent reputable blue-chip companies, the risks associated with the funds are relatively low.
However, to make the most of the best large-cap mutual funds individuals should adopt some effective strategies like –
- Large-cap funds often under-perform when compared to small-cap and mid-cap funds. One should look for investment schemes that come with a low expense ratio to maximise returns.
- Investors should stay invested in blue-chip funds for a long time so that under-performing funds can average out the loss with time.
Should You Invest in Large-Cap Mutual funds Now?
Irrespective of the current market situation, if individuals have some ideal cash with them, they may park it in large-cap funds when the market condition shows signs of improvement. However, it is advisable only if individuals have the patience to stay invested for a long-time; otherwise, it will defeat the entire purpose of capital appreciation.
Additionally, it is essential to gauge one’s current financial standing, expectations pertaining to returns and risk appetite to determine whether to invest in large-cap mutual funds at present or later.