Large Cap Mutual Funds 2024: Features, Benefits & Risks
Large cap mutual funds are the type of equity funds, a category of mutual funds that usually invest in well-established, financially stable companies with a large market capitalization. These funds are known for their focus on investing in blue chip companies. For many, top large cap mutual funds can be a good choice for investors seeking relatively lower risk and long-term growth prospects in the world of mutual fund investments. Let’s learn more about it.
What is Large Cap Mutual Fund?
Large Cap Mutual Fund is like a big basket where you can put your money for investment. But this basket is special because it holds shares of big, well-known companies. These companies are like the giants of the stock market.
Large cap equity funds make up the NIFTY 100 index, comprising top 100 companies that excel in their respective industries and are often seen as less prone to risk. Additionally, large-cap stocks are considered the most reliable because they originate from well-established and renowned corporations.
10 Top Large Cap Mutual Funds in India
To understand large cap mutual funds better, consider reviewing the best large cap mutual funds to invest in 2024.
| Largecap Fund Name | Fund Size (in Cr) | Returns (p.a) |
|---|---|---|
| Nippon India Large Cap Fund | ₹20,217.64 | 37.5% |
| ICICI Prudential Bluechip Fund | ₹47,928.62 | 35.3% |
| IDBI India Top 100 Equity Fund | ₹654.87 | 18.4% |
| HDFC Top 100 Fund | ₹30,261.72 | 35.4% |
| JM Large Cap Fund | ₹73.80 | 38.1% |
| Invesco India Largecap Fund | ₹909.48 | 35.8% |
| Tata Large Cap Fund | ₹1,854.67 | 31.2% |
| Baroda BNP Paribas Large Cap Fund | ₹1,693.42 | 33.6% |
| Mahindra Manulife Large Cap Fund | ₹327.38 | 29.6% |
| Kotak Bluechip Fund | ₹7,333.93 | 27.4% |
Disclaimer: Please note that the above list is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing.
Note: The data on the top large cap mutual funds in India in the list is from 24th January, 2024. However, for real-time updates on stock prices and market trends, visit the smallcase stocks collection today!
Features of the Best Mutual Fund in Large Cap
Here are the features of the top mutual funds large cap.
- Lower Risk: Large cap mutual funds can be generally considered to be less risky than smaller companies, as they have a larger market presence and are more diversified.
- Steady Returns: Large-cap companies tend to grow at a slower pace than smaller companies, but they can generate more consistent earnings.
- Higher Liquidity: Best large cap MFs can be more liquid than smaller stocks, meaning that they can be more easily bought and sold.
- Portfolio Diversification: Large cap mutual funds typically invest in a diversified portfolio of stocks, which can help to reduce risk.
- Suitability for Long-term Investment: Best large cap MF can be best suited for long-term investors, as they tend to generate steadier returns over the long term.
How Do Large Cap Mutual Funds Work?
Large Cap funds primarily invest in India’s top 100 companies, determined by their market capitalization. These companies include well-known brands like Reliance, Britannia, ITC, HUL, and others, and they enjoy a strong reputation in the market. Regulatory requirements dictate that large-cap funds allocate a minimum of 80% of their assets to these top 100 companies.
Opting for Large Cap funds provides the assurance that your investments are directed towards companies with a proven history of consistent performance over the medium to long term. As a result, large-cap funds tend to exhibit lower volatility compared to mid-cap and small-cap funds.
Factors to Consider Before Investing in Large Cap MFs
Before investing in large-cap mutual funds, it is important to consider the following factors:
- Your Investment Goals & Risk Appetite: Large-cap mutual funds are generally considered to be lower-risk investments than other types of equity funds, but they also tend to generate lower returns.
- Fund’s Performance History: It is important to look at the fund’s performance history over the long term (at least 5 years) to assess its consistency. You can also compare the fund’s performance to its benchmark index and other large-cap mutual funds.
- Fund’s Expense Ratio: The expense ratio is the annual fee that is charged to manage the fund. Lower expense ratios may lead to higher returns for investors.
- Fund’s Investment Strategy: Large-cap mutual funds can have different investment strategies. Some funds may focus on investing in value stocks, while others may focus on investing in growth stocks.
- Fund’s Track Record of the Fund Manager: The fund manager plays an important role in the performance of a mutual fund. It is important to look at the fund manager’s track record and experience to assess their ability to generate returns.
Who Should Invest in Large Cap Funds?
Large-cap mutual funds are generally suitable for the following types of investors:
- Long-term investors: Large-cap mutual funds are generally best suited for long-term investors (at least 5 years). This is because the stock market can be volatile in the short term, but large-cap companies tend to generate steadier returns over the long term.
- Risk-averse investors: Large-cap mutual funds are generally considered to be lower-risk investments than other types of equity funds, such as mid-cap and small-cap funds.
- Investors who need to access their money quickly: Large-cap stocks are more liquid than smaller stocks, meaning that they can be more easily bought and sold.
- Investors who are looking to build a core portfolio: Large-cap mutual funds can be a good way to build a core portfolio of equity investments. A core portfolio is a portfolio of low-cost, diversified investments that can help investors to achieve their long-term financial goals.
How to Select Good Large Cap Mutual Funds to Invest in?
To select good large-cap mutual funds to invest in, you can consider the following factors:
- Performance: Look for funds with a consistent track record of outperforming their benchmark index and other large-cap mutual funds over the long term (at least 5 years).
- Expense Ratio: Choose funds with lower expense ratios, as this will leave more of your investment returns in your pocket.
- Investment Strategy: Make sure that the fund’s investment strategy is aligned with your own investment goals and risk tolerance.
- Portfolio Concentration: Avoid funds that are too concentrated in a few sectors or stocks, as this will increase your risk.
How to Invest in the Best Large Cap Funds?
To invest in the best large cap funds, you can follow these steps:
- Open a Demat and Trading Account: This can be done with a stockbroker or online investment platform.
- Choose a Large Cap Mutual Fund: You can use a variety of resources to research large-cap mutual funds, such as financial websites, investment magazines, and mutual fund company websites.
- Invest in the Fund: You can invest in a large-cap mutual fund through a lump sum investment or through a systematic investment plan (SIP). An SIP is a way to invest a fixed amount of money in a mutual fund at regular intervals, such as monthly or quarterly.
- Monitor Your Investment: It is important to monitor your investment regularly to ensure that it is performing in line with your expectations. You should also rebalance your portfolio regularly to ensure that it remains aligned with your investment goals and risk tolerance.
How are Returns on Largecap Mutual Funds Calculated?
Returns on top ranked Large Cap Mutual Funds are calculated using a simple method known as the Time-Weighted Rate of Return. This method takes into account the change in the Net Asset Value (NAV) of the fund over a specific period, along with any income generated by the fund during that time.
Formula for Time – Weighted Rate of Return = [(Ending Value + Income) / (Beginning Value + Investments – Redemptions)] – 1
Taxation on Large Cap Funds
Large Cap funds can be subjected to tax regulations as other equity assets. Profits obtained from investments held for less than a year can be categorized as short-term capital gains (STCG) and therefore, might be subjected to a 15% tax rate.
Conversely, gains from investments held for more than a year fall under the category of long-term capital gains (LTCG). Under the current tax regime, LTCG up to ₹1 lakh in a financial year can be tax-exempted. Any gains exceeding this limit can be taxed at a rate of 10%, hence, they might not receive the benefit of indexation.
Benefits of Investing in Large Cap Index Funds
There are several benefits to investing in large-cap index funds, including:
- Diversification: Large-cap index funds invest in a diversified basket of stocks, which helps to reduce your risk.
- Low Cost: Large-cap index funds typically have lower expense ratios than actively managed mutual funds. This means that you keep more of your investment returns in your pocket.
- Transparency: Large-cap index funds are transparent about their holdings and investment strategy.
- Tax Efficiency: Large-cap index funds are generally more tax-efficient than actively managed mutual funds.
Risks Involved While Investing in Large Cap Index Funds
Investing in Large Cap Index Funds can be a smart move, but like any financial journey, there can be some associated risks.
- Market Fluctuations: The stock market can be like a seesaw, going up and down. Investing in large-cap index funds means you can maybe experience some of these market swings.
- Economic Factors: The economy can affect large-cap companies. Maybe during an economic downturn, even the biggest giants can stumble. So, be prepared for these ups and downs.
- Concentration Risk: Large cap index funds can be often weighted towards a handful of the biggest companies. This concentration can make you vulnerable if those few companies face trouble.
- Limited Growth: Large cap companies are already well-established, which means their growth might be slower compared to smaller companies. So, you can maybe not see rapid returns.
- Inflation: Inflation can eat into your real returns over time. Large cap index funds may not always outpace inflation, potentially affecting your purchasing power.
To Wrap It Up…
In conclusion, investing in Large Cap Index Funds can be a smart move for those who seek a steady and reliable path to wealth growth. So, whether you’re new to investing or a seasoned pro, you can perhaps find a place for Large Cap Index Funds in your portfolio. Remember, while they may not be the flashiest option, they bring a reliable, long-term approach to your investment journey.
FAQs
Large cap funds are generally considered to be good investments for 3 years or more. However, it is important to note that all investments carry some risk, and there is no guarantee that large cap funds will generate positive returns over any given period of time.
Yes, large cap funds can be a good option for new investors. This is because they are relatively low-risk and offer the potential for good returns over the long term.
Returns on large cap mutual funds vary depending on the fund and the market conditions. For example, the Nifty 50 index has generated an average annual return of over 12% over the past 10 years.
As per the general understanding, it is advisable to stay invested for more than seven years, to potentially expect 10-12% returns.
Investing and adding the two best large cap mutual funds is not mandatory. However, one must consider their risk appetite and investment goals before investing.
You can invest in large-cap mutual funds at any time. However, it is important to invest regularly over the long term to benefit from compounding returns.
