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What are large-cap funds? 5 factors investors must consider

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Mutual fund investment is gaining a lot of popularity in India. With various types of mutual funds, i.e. debt funds, equity funds, hybrid funds, and so on, it can be challenging to choose the best mutual fund. Moreover, these types have further sub-types. One of the prevalent subtypes is large-cap mutual funds.

What are large-cap mutual funds?

As the name suggests, large-cap funds invest a substantial proportion of their corpus in stocks of large companies or companies with large market capitalisation. As per SEBI’s new categorisation norms, these funds invest a minimum of 80% of their corpus in equity and equity-related instruments of top 100 companies by market capitalisation.

These large companies could be leaders or well-established players in the market with a proven track record and balance sheet. In comparison to small companies, these companies are regarded as more stable in the volatile market.

Who can invest in large-cap mutual funds?

Large-cap funds are considered the safest among equity funds. Therefore they can be ideal for risk-averse investors looking for relatively stable and market-beating returns. They are also suitable for investors with an investment time horizon of at least five years as the funds provide better capital appreciation over the long-term.

While there are many benefits of mutual fund investment, there are a few things you may want to consider before investing in large-cap funds.

Factors to consider while investing in large-cap funds

  • Financial goals

Large-cap funds can be an ideal investment option if you are considering equity market exposure and at the same time, willing to take a reasonable amount of risk. You can invest in these funds to accumulate wealth for your retirement.

  • Investment horizon

Large-cap funds are ideal for investors with a long-term investment horizon. Typically, a fund underperforms in a bear market but investing for a longer period, say five to seven years, can average out the risks and offer good returns.

  • Risk

Large-cap funds are subject to minimum market risk. Unlike small-cap and mid-cap funds, the net asset value of these funds does not fluctuate much even during market swings. Moreover, these funds can offer stability to your investment portfolio.

  • Return

Large-cap funds could offer strong returns even in a volatile market. Although they provide stable yields in a bear market, you may not receive higher returns in the bull market.

  • Tax benefit

The capital gains arising on redemption of large-cap funds are taxable, and the tax rate depends on your holding period. While short-term capital gains are taxed at 15%, long-term capital gains over Rs.1 lakh are taxed at 10% without the benefit of indexation.

Conclusion

To sum up, if you are a conservative equity investor looking to create wealth over a long period, you can invest in mutual funds online. One of the most significant large-cap mutual fund benefits is that it helps you meet your long-term financial goals while also providing you with a stable portfolio.

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