What are Best Large Cap Mutual Funds?
Large cap mutual funds in India are equity funds that invest in companies with large market capitalization. These are usually the firms ranked between 1 and 100 by full market capitalization. These firms have a good track record with proper management, strong balance sheet, and sustainable business models. Best large cap mutual funds are actively managed and are suitable for long term financial goals. As they invest in the top 100 companies, these fare well during market fluctuations when compared to other equity funds like mid cap and small cap. Large cap mutual funds are suitable for an investor with moderately-high risk appetite and long investment horizon.
What are the Advantages & Disadvantages of Investing in Large Cap Mutual Funds?
Advantages
Stability
Large cap companies are reliable, reputable, have robust policies and corporate governance in place. There are hardly any chances for them to go out of business. They are not affected much by market volatility.
Liquidity
Large cap funds have higher liquidity than mid cap and small cap funds.
Lower risk within equity
Large cap funds invest in well-established businesses. Large cap stocks can withstand market turbulence better than mid cap and small cap companies. Hence they are less risky than mid cap and small caps.
Steady income
Large caps companies have strong cash flow and have already achieved growth. They wouldn't have to reinvest a lot for business growth. Hence they give out more and regular dividends.
Well researched portfolio
Large cap companies have their presence in the market for many years. Hence fund managers have access to their financial and management information. Fund managers have enough information to curate a well-researched portfolio to form a large cap fund.
Disadvantages
Low growth
The scope for growth for large cap companies is less than mid cap and small cap companies.
Not suitable for short term investment
Unlike debt funds, large cap funds cannot be invested for shorter horizons like 3-6 months. One has to stay invested for at least a period of 3 years to start getting good returns.
No exceptional return in a growing market
In a bullish market or growth phase, the growth from these companies wouldn't be as high as the mid cap or small caps. This is because they have already reached the top of the growth curve.
Who Should Invest in Large Cap Mutual Funds?
Large cap mutual funds showcase less volatility and risk as compared to small cap and mid cap funds and offer stable and higher returns. Long term investors seeking equity exposure can invest in the best large cap mutual funds over the mid cap and small cap. The stock in which large cap mutual funds invest has performed consistently during both market highs and lows. Returns from large cap funds are less volatile to market fluctuations.
An investor who does not want their capital to fluctuate more than the market rate should invest in large cap mutual funds. Best large cap mutual funds in India follow the same strategy and invest in the top 100 companies by market capitalization. Therefore, investors with a good understanding of risk having long term investment horizon can invest in the best large cap mutual funds in India. While mutual fund investments are subject to market risks, investing in the best large cap mutual funds ensures stable and secured returns even during a market downfall.
Things to Consider as an Investor when Investing in Best Large Cap Mutual Funds?
Large cap funds, which invest in the top 100 companies based on market capitalization, are actively managed by fund managers. They are well-researched funds and aim at delivering high returns for investors who invest in equity through large cap funds. But an investor has to consider a few things before investing in a portfolio curated from the top 100 companies in the market.
Financial goals
The investor needs to identify financial goals and in how many years the goal has to be realized. For investing in large cap funds, the minimum investment horizon has to be three years. The longer the investor stays invested, the more stable the returns will be over some time.
Expense ratio
The expense ratio for equity funds is capped at 2.5%. For large cap funds, the AUM is higher, and the expense ratio is lower. Investors have to check the fund's expense ratio as it directly affects the fund's returns. A lower rate is always better.
Exit load
Fund houses charge an exit load of 1% if the investment is redeemed before 12 months. As an investor, one has to be sure their invested money is not needed on an urgent basis when investing in large cap funds.
Taxation
The taxation for large cap funds is based on the holding period of the investment. In the short term, less than one year, the gains are taxed at 15% (plus 4% cess), and in the long term, the gains above INR 1,00,000 are taxed at 10% (plus 4% cess). Apart from this, large cap funds are also subject to securities transaction tax of 0.001% when an investor sells the units of the fund. For the dividend option, the dividend distribution tax has been removed effectively from April 1st, 2020. Now the dividend will be taxed in the hands of investors at their slab rate. For dividends over INR 5,000, a TDS of 10% will be levied by the fund houses.
Consistency in past performance
Past performance of the fund also plays an important role which the investor should consider before investing. A fund performing well in the past might not guarantee the same returns in the future. But a fund which has performed consistently well in the past might also perform well in the future. Hence, consistency in past performance is essential.
How to Choose the Best Large Cap Mutual Funds in 2020?
Investments are fun when they earn good returns. This is only possible by choosing the right fund. The following qualitative parameters help in selecting the best large cap mutual fund:
Qualitative Factors
Investment Goal
Identifying and defining goals is the very first step in the investment process. Goals need to be broken down based on duration, and appropriate funds need to be selected to achieve each goal. Equity funds are good for long term goals equity funds and are large cap funds for stable returns.
AUM
Buying a mutual fund means buying the stock portfolio of the fund. A stock portfolio is a deciding factor for returns. Therefore, it is wise to check the portfolio quality by analyzing the assets under management. For significant cap mutual funds, consider funds with relatively high AUM to earn stable returns.
Fund Manager's Experience
Experience doesn't ensure good returns. However, a fund manager who has been in the industry for long will have a better investment strategy when compared to a new entrant. Therefore, while choosing a large cap mutual fund, study the track record of the fund manager as well. This ensures that his investment strategies are functional and have the potential to earn higher returns.
Expense Ratio
This is the fee charged by the fund house for the maintenance of the fund. Invest in funds with a lower expense ratio as a higher expense ratio would lower the returns.
Exit Load
Most equity funds charge 1% exit load when withdrawn within 12 months, and no exit load after 12 months. Since large cap mutual funds are for the long term, this wouldn't have much of an impact. However, in case of emergencies, withdrawals within 12 months are possible. Therefore, be aware of the exit load charged by the fund before investing.
