Large Cap Funds – Fundamentals, Key Features of Large-Cap Mutual Funds

Of the numerous variants of mutual funds that are available in India, equity funds are the plans that are known for offering high returns. As the name suggests, these mutual fund schemes are known for allocating funds to equities. As they invest in equities and equity-related instruments, the performance and the returns generated by these schemes are dependent on the financial situation of the equity market. In case the market is on the bull run, you may be enjoying profits. Conversely, if the market is in a bear phase, then you may have to wait until the market comes back on track. Also, just like mutual funds, it is necessary for you to sign up for the right variant of equity mutual funds. One of those different variants is large-cap funds.

What are large-cap funds?

A large-cap equity fund is the type of equity fund that’s known for investing a major portion of its assets under management (AUM) into equity shares of companies that has a large market capitalisation. Companies falling under large market capitalisation are known for having a high reputation in the market. With large-cap funds, you can feel secure that you are investing in companies that are known for having an excellent track record of performing well on both medium to long-term horizons.

How do large-cap funds work?

Large-cap funds are known for investing a sizeable portion of their corpus in businesses that are grouped under large market capitalisation. Companies that are under large-cap capitalisation are well-established players and have a good reputation for delivering returns. Large-cap businesses are usually the highly followed stocks in the market. These funds are known for generating wealth for their investors slowly and steadily over time.

The latest re-categorisation by SEBI led to the modification of the criteria to determine whether a business falls under large-, mid-, or small-cap categories. Large-cap funds are known for focusing on businesses that fall between the ranks 1 and 100 in the terms of full market capitalisation. In comparison to small- and mid-cap funds, large-cap funds are less risky and might also be ideal for relatively risk-averse investors. Having a long-term horizon and being patient might be a preferable investment strategy while investing in large-cap funds.

Are there any key features that are associated with large-cap funds?

  • Market fluctuations don’t have an heavy impact on these funds:

As the companies that these funds invest in are financially sound, the odds of large-cap businesses facing bankruptcy due to economic circumstances are very slim. Large-cap companies are not heavily impacted by market fluctuations and therefore are known for offering stability to the portfolio. Moreover, large organisations are known for handing out a dividend that helps in the steady wealth generation of the investor.

  • They are known for offering liquidity:

Another advantage of these funds is that large-cap equities are known for offering an ample amount of liquidity. Thus, it’s easy to redeem the entire portfolio during a bear market without impacting the prices and thereby causing any significant loss. This feature can be of vital importance during volatile stretches. Fund managers can also buy and sell high-cap stocks whenever the need arises that requires maximising returns.

  • It is possible to earn higher capital appreciation:

Given the fact that large-cap schemes allocate funds to blue-chip companies that are known for performing well and offering stable yields, their stock prices don’t oscillate that much. Hence, large-cap funds come with the potential of offering capital appreciation to investors over the years.

Large-cap funds are ideal for investors who are seeking to make good use of equity investments but, don’t want their returns to fluctuate with time. Since Large Cap funds are known to be financially stable, they are capable of withstanding bear markets.