Large Cap Fund: Understanding the Basic
Based on market capitalization, large-cap mutual funds are invested in the top 100 companies. These funds focus on the biggest and household-named brands with a strong market presence. Let’s look deeper into the large-cap funds , their best-performing options, and how to choose the right one that suits your portfolio.
What Are Large Cap Mutual Funds?
Large-cap mutual funds primarily invest in large-cap companies— the companies that ranked in the top 100 based on market capitalization, as defined by SEBI (Securities and Exchange Board of India). These companies which include companies like Reliance, TCS, Britannia, Nestle, etc have proven a good track record of stability and performance. SEBI mandates that these funds allocate at least 80% of their assets in equity and equity-related instruments of large-cap firms.
How Do Large Cap Mutual Funds Work?
When you invest in a large-cap fund—say, through a monthly SIP of ₹5000—your money is pooled with other investors. A professional fund manager then allocates this combined corpus across selected large-cap stocks. The fund’s objective is to outperform its benchmark index (like NIFTY 50 or NIFTY 100). Your investment earns returns based on the Net Asset Value (NAV), which grows if the underlying stocks perform well.
Should You Invest in Large Cap Mutual Funds or not?
To determine if large-cap funds suit you or not, first of all you need to plan your financial goals and make your investment profile. To plan better simply get ready with the following answers:
- What are you investing for ? Is it for retirement, child’s education or marriage or for something else?
- Do you prefer for a stable or a high-risk returns?
- Your liquidity with the fund?
- Are you able to handle the market fluctuations?
- What is the time frame that you are able to hold the fund?
Large Cap Funds May Suit You If:
We have elaborated here some factors which can help you to decide whether a Large cap fund can suit you or not.
- Lower volatility: Large-cap funds are much more stable on market fluctuations than mid- or small-caps. Hence are lesser volatile and prevent you from untoward panics on market corrections. Also, Large-cap funds hold well-established companies so after market corrections these funds tend to regain all your portfolio corrections.
- Long-term investor: Here comes the power of compounding. Large-cap funds give steady returns over the time period. If an investor sustains the short market dips, over the long term a good overall return can be realized.
- Investment in reputed companies: Investing in Large cap Funds makes you satisfied and confident enough to make sure that your hard-earned money is being invested in India’s top companies like Reliance Industries, TCS, Hindustan Unilever etc.
How to Choose the Best Large Cap Mutual Fund
Here are a few key factors to consider while selecting the funds:
- Compare the performance with the benchmark: Look for funds that match or outperform NIFTY 100 TRI or BSE 100 TRI.
- Analyze risk-return metrics: Assess Alpha, Beta, Sharpe Ratio, Standard Deviation, and Sortino Ratio of the fund.
- Check the expense ratio: Prefer for a lower expense ratio of the fund. Lower the ratio means less expense cost of the fund.
- Review the fund manager’s experience: Look for the fund manager of the Fund.A skilled manager can make a significant difference.
Why Consider Investing in Large Cap Mutual Funds?
1. Steady and Reliable Growth
As Large-cap funds invest in top Indian Companies which are large industry giants with solid track records hence you can sit back and relax that your investments are comparatively more secure which can give you steady and reliable growth.
2. Easy to Buy and Sell (High Liquidity)
One of the big advantages of large-cap funds over small and mid-cap funds is that it is traded in high volumes which helps the investors to easily redeem their investments without much affecting the NAV of their investments.
3. Potential for Extra Income Through Dividends
Many large-cap companies are known to share their profits with investors in the form of dividends. So apart from capital appreciation, there’s also a chance to earn regular dividend income—a bonus for your portfolio.
Large Cap vs. Mid Cap vs. Small Cap Funds
- Large Cap: Top 1-100 companies; lower risk, stable returns.
- Mid Cap: 101-250; moderate risk and returns.
- Small Cap: 251 and beyond; higher risk with higher return potential.
Taxation on Large Cap Mutual Funds Gains
Investment in stock markets in India falls under Capital gain tax. So large-cap mutual funds are also subjected to capital gains tax. The amount of tax you need to pay depends on how long you are invested in the market.
- Short-term Capital Gains (STCG): If you redeem your investments within 12 months from the date of purchase, the gains are treated as short-term gains and are taxed at a 15% rate. This is a standard taxation rate that applies across the equity and mutual funds’ incomes, regardless of your total income slab.
- Long-term Capital Gains (LTCG): If you hold your investment for more than one year, the gains come under the long-term capital gains. There is one benefit—gains up to ₹1 lakh in a financial year are completely tax-free. But if your gains exceed ₹1 lakh limit, then the excess amount is taxed at a 10% rate, without any benefit of indexation.
So, the tax structure makes large-cap funds especially attractive for long-term investors, which allows you to potentialQ: Are large-cap funds good for long-term investment?
ly grow your wealth with more efficient post-tax returns over time.
Frequently Asked Questions
Are large-cap funds good for long-term investment?
Yes, they offer stable, long-term growth with lower volatility.
What benchmarks do large-cap funds follow?
Usually NIFTY 50, NIFTY 100, or BSE 100.
Are large-cap stocks the same as blue-chip stocks?
All blue-chip stocks are large-cap, but not all large-cap stocks are blue-chip.
How many large-cap funds should I own?
1-2 is ideal to avoid overlapping holdings.
Which is SIP or Lump Sum better?
SIP: Great for disciplined investing and market averaging.
Lump Sum: Useful during market corrections or when you have excess capital.
Where Can You Invest?
There are many companies like ETmoney, Groww, Moneycontrol and INDmoney that offer a curated selection of large-cap mutual funds to explore, analyze, and invest in mutual funds based on your goals and risk appetite. Many brokers now allow to invest in Mutual Funds which also allows you to explore you.
Keep an Eye on Your Investments
Investing in Share Markets isn’t a one-time process. Even after you’ve put your money to work, it’s important to check, how your portfolio is doing. Think of it like sowing a seed—you’ve planted the seed, but now it needs a little attention and monitoring to grow it right.
Here are a few simple ways to understand if your mutual fund is truly serving your goals:
1. Check the Benchmark—Is Your Fund Keeping Up?
Regularly compare your fund with the fund’s benchmark index. If your fund is beating the benchmark index it’s a good sign. You can keep your investments.
2. Look at CAGR (Compound Annual Growth Rate)
CAGR gives you a clear picture of how much your money has grown annually on an average basis. It smooths out the ups and downs, so you can see the true progress over time. If the CAGR is positive and in line with your financial goals, it’s a solid sign that your money is growing steadily.
3. Don’t Forget XIRR—Especially if You Invest Through SIPs
If you’re investing regularly, like through monthly SIPs, XIRR helps show the real growth of your money by considering when you have invested. It gives a clearer view than just CAGR. If your XIRR is higher than the fund’s benchmark then your fund is growing well, and you’re on a good track.
Why It Matters
Your investments are part of your dream—whether your investment is for a new home, your child’s education, or a peaceful retirement. Taking a few moments now can make you sure that your hard-earned money is truly working for you. Moreover, diversify your investment. Though investing in Large cap funds can give you a consistent return, investing in Small cap and Mid cap can be wise as returns on Small cap and Mid cap are much higher than Large Cap.
Let me know if you’d like to add a checklist or visual guide alongside this!
(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. FINOSTRY suggests its readers/audience to consult their financial advisors before making any money related decisions.)