Equity funds that invest a larger percentage of their total assets in organizations with a high market capitalization are called Large Cap mutual funds. These companies enjoy a great reputation in the market and have a proven track record of providing wealth to investors over an extended period of time. Hence Large Cap funds are recognized to product consistent dividends and stable wealth accumulation. Further, these schemes also have a lower risk profile than small-or mid-cap funds and are considered to produce more consistent returns. SEBI informs that large cap companies fall in the top 100 list of firms by market capitalization.
Here is an article on Large Cap Funds:
Financial planners recommend investors have large cap funds as a core holding in their portfolio as such companies are better prepared than smaller companies to manage risk. Investors can participate in such companies using mutual fund schemes.
How can an investor take exposure to large cap stocks using mutual funds?
Large cap stocks are present in several mutual fund categories. While large cap funds have a minimum allocation of 80% to large cap stocks ranked 1-100 by market capitalisation, multi cap schemes need to have a minimum allocation of 25% to large caps. Although flexi cap and focused schemes are free to choose stocks based on the fund manager’s view of the market, most schemes end up allocating 50-70% to large cap stocks. There are many passive mutual fund schemes that mimic the index and give exposure to large cap stocks. Passively-managed schemes that track the Nifty 50, S&P BSE Sensex, Nifty Next 50, Equal Weight Nifty, and Nifty 100 have a portfolio of large cap stocks.
What advantages do actively-managed large cap funds offer over passive funds?
Passive funds invest in stocks in the same proportion of the index that they track. They have a low cost compared to active funds. However, actively managed funds give flexibility to buy stocks and allocate on the fund manager’s view of the market. The fund manager is free to decide the allocation to each stock in the portfolio, with the maximum allocation to a single stock at 10%. Based on the fund manager’s view of the market and valuations, s/he is free to exclude any stock or have a low weight.
What is the advantage of investing in large cap stocks over mid and small cap stocks?
Large cap stocks are highly liquid, and tracked by a large number of analysts and fund managers. They have a higher reputation and have a good track record of creating wealth for investors. They pay regular dividends and carry lower risk as compared with small cap or mid cap stocks and are a good option for investors with a relatively lower risk appetite and a long-term investment horizon.
Who should invest in large-cap funds?
Investors looking to allocate to equity as an asset class for the long term but with lower volatility should consider large-cap funds. Ideally, they should be a core part of an investor’s portfolio, with satellite allocation to mid- and small-cap funds.
Courtesy: Economic Times Dt.: 13th Sept. 2023