In order to understand mutual funds properly, you need to learn about the different categories of mutual funds and the different sectors they represent. One such category is large-cap mutual funds.
As someone who has made the decision to start investing in mutual funds, you are way ahead of your peers.
This decision, however, comes with its own set of challenges. You need to understand what your investment goals are. You need to have a good idea about how much of your income you can set aside for your investment.
This decision also comes with a host of responsibilities. And one of those responsibilities is to educate yourself and understand all that there is to know about investing in mutual funds.
In order to understand mutual funds properly, you need to learn about the different categories of mutual funds and the different sectors they represent.
One such category of mutual funds is large-cap mutual funds.
In this article, we want to talk about large-cap mutual funds and help you understand what these funds are.
By now, you must already be aware that mutual funds are broadly divided into two categories: equity funds and debt funds.
Each of these funds is further categorized on the basis of the fund size, underlying asset, industry sector and so on.
You might have many questions about large-cap mutual funds.
We hope to address all of them in this post.
First, let’s start with understanding what market capitalization means.
Market capitalization – also commonly addressed as “market cap” or just “cap” – is the market value of a company that is publically traded in the stock market.
Market capitalization is calculated by multiplying the total number of outstanding shares by the price of each share.
Outstanding shares refer to the number of shares issued by the company, that are held by its shareholders and investors.
Let’s look at an example to understand market capitalization better. Let’s assume a company that recently went public issued 100 shares at the price of Rs. 10 each; in this case, the market capitalization of this company is Rs. 1000.
Understanding market capitalization is important because it is one of the key characteristics that factor into an investment decision. It helps an investor determine the rate of return and the risk involved in purchasing a share.
This will also help you build an investment strategy according to your financial goals and also help to achieve a balanced portfolio.
As we have previously discussed in this article and several other blog posts on Scripbox, mutual funds are either equity-based or debt-based.
This is because of the way mutual funds are organized. Mutual funds are mostly categorized on the basis of asset classes.
Based on these asset classes, broadly, there are about four types of mutual funds. Equity funds are almost always exclusively include stocks. Debt funds or fixed-income funds include bonds. Money market funds include short-term debt for the purpose of liquidity and lastly, balanced or hybrid funds are mostly a combination of both stocks and bonds.
Since equity mutual funds are the ones that include company stock and shares as their investment assets, large-cap funds almost always fall under equity mutual funds.
Understanding this classification is important as we proceed further.
Large-cap stocks are stocks of the topmost companies listed on the stock exchange. Large-cap companies have extremely high market capitalization.
Large-cap stocks are a set of companies that have a market capitalization upwards of Rs. 20,000 cr.
These are the companies that were established many years ago and have consistently performed well. They are the market leaders in their respective sectors and carry an impressive track record. These are the companies that have emerged as leaders irrespective of many business adversities over the years.
Some examples of large-cap companies in India include Reliance Industries Ltd, TCS, HDFC Bank, Infosys, Bajaj Finance, Asian Paints, etc.
Large-cap mutual funds are a category of equity mutual funds that predominantly invest in large-cap companies.
As per SEBI’s (Securities and Exchange Board of India) guidelines, large-cap mutual funds invest 80% of their corpus in large-cap companies.
As we just discussed, large-cap funds invest in the top 100 companies ranked as per their market capitalization.
Mid-cap companies are companies with a market capitalization that ranks from 101 to 250. These are the companies that are smaller than large-cap companies in terms of size, profitability, and business operations. Mid-cap equity mutual funds predominantly invest in mid-cap stocks. As per SEBI guidelines, mid-cap equity funds must invest at least 65% of their corpus in mid-cap stocks.
Mid-cap companies approximately have a market capitalization of more than rs. 5000 cr but less than rs. 20,000 cr. Federal Bank, Manappuram Finance, RBL Bank and Yes Bank are some examples of mid-cap stock.
Small-cap companies are the ones that rank after the 250th company as per market capitalization. Roughly speaking, any company with a market capitalization of under Rs. 5000 cr is considered small-cap. Karnataka Bank and Avanti Feeds Ltd., are examples of small-cap companies.
Just as we discussed varying degrees of market capitalization, we wanted to include a quick note about different sectors represented by the large-cap funds.
For example, some of the most popular sectors include healthcare, technology, telecom, infrastructure, energy, pharma, financial services, FMCG and so on.
Companies like Infosys and TCS belong to the technology sector while companies like Bharti Airtel belong to telecom. HDFC Bank represents financial services while ITC Ltd., represents FMCG.
As the equity markets are volatile, there is a possibility that some sectors enjoy a good quarter while the other sectors fall short of their expectations. This is a primary reason for large-cap funds to include multisector stocks.
For instance, let’s assume that the technology sector performed slightly better than the energy sector in the past quarter. The sector that performed better will be able to make up for the underperformance of the other sector. This strategy leads to having a well-balanced fund.
Investing in large-cap mutual funds has its fair share of advantages. Let’s take a look at some of them in this section.
Large-cap companies with the high market capitalisation (upwards of Rs 28,000 crore as per AMFI classification) have unique characteristics that differentiate them from the rest know more why do you need large-cap funds in your portfolio?
Large-cap mutual funds are an ideal investment opportunity for anyone looking to start investing in mutual funds.
But if you are someone who fits into one of the categories listed below, you should definitely consider investing in at least one of the large-cap equity mutual funds.
There are a few additional factors you must consider while investing in a large-cap fund. We have briefly talked about some of them here.
Choosing the right large-cap mutual fund is not an easy task. In spite of spending a lot of time researching, you might not find a straight forward answer. There so many well-performing large-cap funds.
If you choose to invest with the help of Scripbox, we completely take the guesswork out of the way. We have a scientific investment process that analyses over 8000 mutual funds, compares their historic performance and recommends only the best options as per your investment needs.
Among the top 5 best performing large-cap mutual funds, two of them are included in our Scripbox recommendation for long-term wealth generation goals.
Let’s take a quick look at them.
The main objective of this fund is to generate long term capital appreciation by investing in equities of large-cap companies. The fund manager is Gaurav Misra and the fund allocates 96% of its corpus to large-cap equity investments.
This is a high-risk fund that has generated a favourable return of around 11.93% over a 5 year period.
AXIS Bluechip Fund-Growth is an open-ended equity scheme that aims to outperform the benchmark with risk lower than the benchmark. It is benchmarked to the Nifty 50 Total Return Index.
The fund allocates 82% of its assets to equity and the rest 12% to others with a total asset under management worth ₹ 11,823.95 Crores. The fund is managed by Shreyash Devalkar
The investment objective of the fund is “To provide long-term capital appreciation/ income by investing predominantly in a diversified portfolio predominantly consisting of equity and equity-related securities large-cap companies including derivatives”.
I hope this article answered some of your questions about large-cap mutual funds. As we have mentioned before, investing in large-cap equity funds can be complicated. Take your time to do additional research and learn as much as you can.
Set some time aside to make a list of your financial goals and figure out what exactly you want your investments to do for you. Based on your requirements, you can choose a fund that is best suited for your current and future financial needs.
Taxation on mutual funds is a complex topic. Taxes paid on your mutual fund investments vastly depend on factors such as what kind of funds you have invested in, the duration of your investment, which income tax slab you belong to and so on.