What are large-cap funds? Who should invest in these mutual funds

Large-cap mutual funds are investments in some of India’s largest and most financially secure firms producing a blend of consistent growth, diversification, and less volatility for their investors. So, who should be investing here? Also, how do these funds work versus mid-cap or small-cap mutual funds? Find all this information (and more) in our comprehensive large-cap fund guide (including potential rewards/risks/sympathetic taxation/tips on choosing the right fund for you).

What are large-Cap funds?

A large-cap fund is an equity mutual fund that invests mostly (a minimum of 80%) in stocks of high market capitalisation (usually referred to as large-cap stocks), which are generally considered to be the 100 largest stocks listed on an exchange based on their market value. Market value is calculated by multiplying the current share price of a company's stock by its total number of outstanding shares. Examples of large-cap companies in India include: Reliance Industries, HDFC Bank, Tata Consultancy Services (TCS), Infosys, and ICICI Bank.

Some general features of large-cap funds include:

Investment of at least 80% of the funds into the stocks of large-cap companies (as per guidelines from the Securities and Exchange Board of India – SEBI);

Focus on offering investors stable prices, high liquidity, and moderate growth over the long term

Investments made across various sectors to help diversify and reduce risk

Managed by qualified professionals who monitor the company’s fundamental data on an ongoing basis.

Comparatively, while large-cap funds tend to exhibit lower levels of volatility than mid or small-cap funds, large-cap funds are also viewed as being more effective than holding other types of investments when viewed as a means of creating long-term wealth, especially as they remain the least likely to incur significant losses.

Who are best suited for large-cap funds?

Large-cap funds are ideal for:

Conservative or moderate investors, who want more exposure to equities with lower volatility.

First-time equity investors, a safer way to enter the stock market.

Long-term investors, who have financial goals of 5 years or more.

Core portfolio investors, serving as the consistent foundation for a well-diversified portfolio.

Investors Looking for Liquidity: The liquid nature of these funds means redemption will not have a significant effect on their market values.

How large-cap funds work

Large-cap funds are pooled together with other investors to increase the amount of money available to the fund managers to invest in blue-chip stocks (i.e., large, well-known companies that have a consistent track record of earnings, have a significant presence in their industry, and are capable of handling large amounts of cash).

In addition to blue-chip stocks, large-cap fund portfolios generally have 5%-20% cash or short-term debt in order to help maintain liquidity and reduce the risk to the investor.

Advantages of large-cap investments

Less price fluctuation – Large-cap stocks tend to have more stable prices compared to other asset classes.

Steady growth – Large-cap investments may allow investors the ability to plan for retirement or their children’s education (5-10 years).

Developments across the industry – By investing in large-cap companies, the investors will have access to more than one sector (i.e., IT, Banking, FMCG, Energy) and thus reduce their overall sector-specific risk.

Accessibility – Large-cap stocks are highly liquid, providing easy access for the investor to redeem their units in the fund.

Expertise of investment professionals – Professional fund managers will select stocks based on the financial strength of the company, as well as capital market trends.

Tax Advantage - Long-term capital gains on purchases over ₹1,00,000 are taxed at 10% after 1 year.

For more updates, join/follow our WhatsApp, Telegram and YouTube channels.