In mutual fund investing, equity mutual funds tend to be risky as compared to other types of mutual funds. Yet within them, large-cap funds are perceived by the investor community to be a relatively safer, more stable investment avenue than mid-cap and small-cap funds.
What are Large-Cap Funds?
Large-cap funds are mutual funds that invest at least 80% of their assets in the equity and equity related instruments of large-cap companies. In turn, the Securities and Exchange Board of India (SEBI) defines large-cap companies as those listed on the Indian stock exchanges and ranked from 1st to 100th in terms of full market capitalisation.
Large-cap companies' business models can be relatively stable ones. These companies are often well-reputed in the market, are well-researched, information from them is more forthcoming and readily available, and their stocks are sufficiently liquid. By their reputation and size, they tend to get funding through debt and equity readily. Unless there are severe issues with the top management, these companies have reliable businesses that have stood the test of time. Given their ability and experience, large companies may be better equipped to handle economic downturns.
Who Should consider Investing in Large-Cap Funds?
First-time investors who are new to equities and are not comfortable with high volatility could opt for large-cap funds. Conservative investors looking for some exposure to equities and are willing to stay invested for a longer time horizon but have a low-risk appetite can also consider investing in these funds.
Reasons to consider Investing in Large-Cap Funds
Large-cap funds invest 80% of their assets in stocks of large-cap companies. These companies may have relatively more robust business models with a fair degree of visibility in the future. By their scale and size, they may be in a position to command appropriate market pricing. They tend to have a good track record regarding financial performance and doling out dividends at times as well. They may also endure market turbulence, and the fact that the stocks of these companies have high liquidity may ensure some degree of comfort to investors during periods of increased volatility.
Points to Consider Before Investing in Large-Cap Funds
Investment risks: At the end of the day, large-cap funds are a subset of equity mutual funds and are, therefore, not immune from volatility, although they are relatively more stable than mid-cap and small-cap funds.
Longer investment horizon: Large-cap funds can be an option for investors with a longer time horizon if they wish to reap the benefits of capital appreciation and inflation-beating returns. In the short term, the stock market can get volatile, but over a longer time frame, there is a possibility that this volatility will get ironed out.
Tax on capital gains: Since large-cap funds are equity mutual funds, Thus, long-term capital gains exceeding Rs 1 lakh p.a. attract a tax of 10%, short-term capital gains are taxed at 15%.
To conclude
If you wish to embark on your journey of investing in mutual funds with some exposure to equities, you could consider large-cap funds. However, before taking the final decision, check whether these funds align with your risk appetite and investment goals.
Disclaimer:
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, associates or representatives (“entities & their associates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their affiliates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this document.
Mutual Fund Investments are subject to market risks, read all the scheme related documents carefully.
