Large Cap Mutual Funds – Concept, Significance, Benefits, Drawbacks & moreLast Updated Date: Nov 17, 2022
Are you someone who finds investing in securities way too risky? That doesn’t mean you will never invest in stocks. All you need to know is that Large Cap Mutual Funds are just for you.
You can invest in large-cap funds by hiring some professional managers. No doubt there are a plethora of funds available for investment, but nothing beats the large-cap mutual fund.
But before learning about large-cap mutual funds, you must know who are large-cap companies.
Ideally, the large-cap organizations are some of the big players in the market, having an excellent reputation and vintage.
Additionally, their corporate image is also consistent. Currently, SEBI’s regulations have changed the basis on which one can determine the large cap company, small-cap, or mid-cap.
In simple terms, you can say large-cap companies come in the list of top 100 companies in the market. No doubt investing in mutual funds is a difficult decision to make.
Some of the essential decisions include choosing a fund with the right combination of securities, good performance, and an experienced fund manager.
One of the most critical parameters that you just can’t miss out on while selecting an equity portfolio is company’s size. The size of the company is also known as market capitalization.
Based on market capitalization, you can segregate the funds, including large-cap, small-cap, and mid cap. Above all, before you start investing, you must understand these basic terms.
About Large Cap Mutual Funds
Ideally, large cap mutual funds choose to invest in the majority of the fund’s amount in companies having a huge market capitalization.
Above all these, companies hold a high reputation in the market, and they also have a record of generating wealth over a period of time.
If you are planning to invest in large cap funds, then you must know that these funds generate a stable income.
As compared to small and mid-cap funds, the large-cap funds are less risky as they give stable returns.
If you are an investor having a less risk-taking appetite, then large-cap funds are just for you. As per SEBI guidelines, the large cap funds are in the list of top 100 companies in the market.
Hence, you can say that these companies are quite popular in the market. Besides having a great image in the market, these companies also have stable governance policies.
Over the long term, these companies tend to generate wealth for their investors in a steady manner.
The fund is ideal for investors who not only have a long term horizon but also have some patience. Some of the examples of the large-cap funds include Britannia ITC, HUL, etc.
By investing in large cap fund companies, you can have peace of mind as they have an excellent reputation in the market.
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Who should Invest in Large Cap Mutual Funds?
Large Cap Funds are quite ideal for investors who want to invest in equity funds. But don’t wish for the returns to be fluctuating with time.
These funds can easily withstand bearish markets because they are stable financially. From an investor’s point of view, the large-cap funds feature some sort of stability.
This is the only reason it is quite prominent among investors. At times, investors tend to put a significant chunk of their capital amount around the large cap funds.
In simple terms, the large-cap funds are ideal for investors who get the benefits from equity investments, but are not willing to take risks.
Over a long period of time, these funds offer better capital appreciation and also offers dividend equally. The main agenda of the large cap funds is to keep on investing when the market falls down.
So the impact of loss is not visible. Long term funds serve investors who want exposure to high-quality stocks with a long term investment goal.
Additionally, you can say that large-cap funds mainly depend upon the investor’s investment horizon and risk or return goals.
Experts say to invest in this fund; one must have an investment horizon of at least five to seven years.
It doesn’t mean that the funds are immune to the downturn. All it means is they can easily face the slowdowns.
The large-cap funds are quite suitable for investors who are looking out for stability in the future.
Find details of other Types of Funds here
|Equity Mutual Funds||Multi Cap Funds||Dividend Yield Mutual Funds|
|Index Mutual Funds||Small Cap Mutual Funds||Contra Mutual Funds|
|Mid Cap Mutual Funds||ELSS or Equity Linked Savings Scheme||Sector Mutual Funds|
|Value Mutual Funds||Focused Mutual Funds||Debt Mutual Funds|
Features of Large Cap Funds
Here are few things that any investor should know before investing in Large Cap Mutual Funds.
All of us now know that mutual funds are subject to market risk, and the same goes for large cap funds.
Under these funds, the net asset value of the funds doesn’t mainly fluctuate primarily due to fluctuations in the market, unlike other funds.
Your portfolio gets some kind of stability when you choose to invest in large cap funds. Thanks to the stability feature that might just offer some significant chunk of money around these.
You just can’t assume that the large-cap funds will perform in an erratic manner because they have a strong history of serving well.
The returns under this fund are less volatile as compared to other funds. Above all, you must not take stress or feel sad if the fund earns fewer returns during the market’s peak position.
When it comes to investing in large-cap funds, investors have to pay a fee known as expense ratio to manage the fund.
You can say it is an average asset under management percentage. The operating efficiency of the fund shows it. As per SEBI, the maximum upper limit ratio is 2.5%.
These funds are mainly ideal for investors having a long term investment goal. When the market experiences some types of slumps, then the large-cap funds undergo a severe underperformance.
It leads to an average in the long run of at least seven years, and it gives the return of at least 10 to 12%.
If you want to make out the maximum from the fund, then you need to invest for a more extended period.
The large-cap funds are perfect for investors who don’t have a significant risk taking appetite. These funds not only offer consistent returns but also check on the fund’s erosion when the market falls.
You can choose to invest in these funds if you are planning for retirement. Even if you are a newcomer in the market and learning about equity markets.
Then you can choose to invest here as they offer less risk. Additionally, they are quite an attractive option for investors as they are easy to invest in. And they also provide significant tax gains.
Tax on Gains
You tend to earn some capital gains when you choose to redeem the units of your large-cap funds. The taxation rates mainly depend on the duration of investment in the large cap funds.
You need to pay 15% tax gains on short term capital gains. While on the long-term capital gains, you need to pay 10% tax.
As per recent guidelines, the long term capital gains are most likely to be taxed at Rs.1 lakh without any indexation benefit.
Find details of all types of Debt Funds here
Large Cap Mutual Fund – Conclusion
When it comes to investing in a large-cap fund, then you must analyze it from all perspectives. Above all, you can’t ignore the investment horizon, financial goals, and risk appetite.
Additionally, the large cap mutual funds are not suitable for short term investors as the fund goes through under performance when the market falls.
Hence, you can know that these funds offer excellent capital appreciation, but you must consider the investment objectives before investing.
Apart from the investment horizon, even risk tolerance plays a crucial role. You can easily invest in large-cap funds if you follow this guide.
Well, it is challenging to invest in large cap mutual funds. But with expert fund managers things become quite east so you don’t need to stress at all.
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