Mirror, Mirror On The Wall, Why Are Large Cap Funds the Largest Of All

When you go to try a dress, aren’t you thankful that there are different sizes available? Sizes have some relevance in the world of investing too, especially in the case of a mutual fund investment. There are different types of mutual funds as per market capitalisation, and each has a distinct role to play in your portfolio. For now, let’s focus on the largest of them all - large cap equity fund and why it makes for a good investment.

First things first, what’s so large about a large cap mutual fund?

The Securities and Exchange Board of India (SEBI) classified equity mutual funds into 10 different types that can further be classified based on different grounds. For example, equity mutual funds can be categorised as large, mid, and small cap funds on the basis of their market capitalisation. Large cap companies include the top 100 businesses in the market. These are the most prominent players, kind of like the lions of the jungle. A large cap fund is a mutual fund that invests at least 80% of its corpus in large cap companies.

Wondering what a large cap fund can offer to you? Read on!

There is a reason we called these companies the lions of the jungle. Investing in a large cap equity fund can offer several benefits, such as:

1. You get exposure to large, well-established businesses: When you invest in a large cap equity fund, your money is invested in some of the biggest names in the market. Large cap funds focus on quality businesses with the potential to grow more in the future. These funds follow the philosophy of GARP (Growth at a Reasonable Price Philosophy) and invest in businesses with high earnings and greater future potential.

2. You gain from comprehensive sector allocation:Your money is invested across different sectors depending on the large cap fund you choose. An average large cap mutual fund can invest in sectors like computer software, banking, crude oil and natural gas, telecom services, infrastructure, cars and multi utility vehicles, drugs and pharmaceuticals and more.

3. You get mild exposure to small and midcap fund stocks: Large cap mutual funds also invest in small and midcap companies. Even though the concentration is low, you still get to diversify your portfolio and improve your returns.

4. You may earn good returns over time: Large cap equity funds can deliver relatively good returns over a long duration. Large cap companies are comparatively more stable and are able to ride out volatility and extreme market conditions. So, the chances of suffering dramatic losses in the case of a market downturn are low.

It is important to note that equity funds are usually viewed as long term mutual funds in India. They may not be suitable for your short-term goals.

Conclusion

You can invest in large cap equity funds if you have a high risk appetite and a long term ahead of you. They can be ideal for long-term growth and deliver relatively good returns while shielding you from extreme market volatility and economic downturns by investing in fundamentally strong and established businesses. However, as with all mutual funds, you must go through the portfolio of a mutual fund and check the fund manager’s credentials, the fund’s expense ratios, exit loads, and other similar aspects before settling on a suitable large cap equity fund.

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