Large-cap funds invest in respectable companies that have a strong operational history and stable financial positions. These companies are less volatile than smaller, more recent companies since they have a wider variety of revenue streams and can withstand economic downturns better.
Describe large- and mid-cap funds
Large and mid-cap mutual funds follow a particular investment ratio set by the Securities and Exchange Board of India (SEBI). The categories are broken down and discussed below.
At least 35% of the fund’s assets must be held by large-cap enterprises, which normally represent the largest and most respectable businesses on the Indian stock market. You should allocate at least an additional 35% of your investment to mid-cap companies, which possess significant growth potential despite being smaller than large-cap corporations.
The goal of this combination is to combine the higher growth potential of mid-cap stocks with the stability of large-cap companies. Because of their established track records, large-cap companies offer greater stability, whereas mid-cap companies have the potential for higher returns but also higher risk.
Large and mid-cap funds are worth considering for investors looking to strike a balance between risk and reward. They should be taken into consideration by investors with a medium-to-long-term time horizon and a moderate risk tolerance.
It is important to include one or more large or midcap funds in your mutual fund category. The performance of some of the top large and midcap funds over the last ten years is shown in the following table.
Why invest in large and midcap funds?
Investing in large and mid-cap funds can offer several advantages for investors. Here are a few reasons why investing in these funds can be beneficial:
- Growth Potential: Large and mid-cap funds invest in companies with varying market capitalizations, providing exposure to both established and emerging companies. This diversified approach can potentially offer the opportunity to benefit from the growth potential of different sectors and industries.
- Balanced Risk-Reward Profile: Large-cap stocks generally offer stability and lower volatility due to their established market position and financial strength. On the other hand, mid-cap stocks have the potential for higher growth as they are still expanding their market presence. By investing in both, investors can achieve a balanced risk-reward profile.
- Flexibility: Large and mid-cap funds provide flexibility in terms of investment choices. The fund managers have the flexibility to invest in companies of different sizes and sectors, allowing them to capitalize on investment opportunities across the market spectrum.
- Diversification: Investing in large and mid-cap funds can provide diversification benefits by spreading investments across a wide range of companies. This diversification helps reduce the impact of individual stock performance on the overall portfolio, potentially enhancing risk management.
- Long-Term Performance: Historically, large and mid-cap funds have delivered strong long-term performance. These funds have the potential to generate attractive returns over time, aligning with investors’ long-term financial goals, such as retirement planning or wealth accumulation.
- It’s important to note that investing in mutual funds, including large and mid-cap funds, carries risks, and past performance is not indicative of future results. It is advisable to carefully consider your investment objectives, and risk tolerance, and consult with a financial advisor before making any investment decisions.
Investing in both large and mid-cap companies lessens the fund’s inherent diversification and lessens its reliance on the success of a single company. Although pure mid- or small-cap funds are less volatile than big and mid-cap funds, it’s crucial to keep in mind that they are still market-linked investments with inherent risks.