Large-cap funds are equity mutual funds where the fund manager invests at least 80% of the total fund corpus in equity shares of large-cap companies. These funds have the potential to generate stable returns for their investors despite the equity exposure as the companies in which they invest are industry leaders.
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Best Large Cap Funds in 2022
Here are some large-cap mutual funds ranked in terms of 3-year annualised returns as of June 24 2022:
| Fund Name | 3-Year Annualised Returns |
| Kotak India Growth Fund Series 4 Growth Direct Plan | 24.54% |
| Canara Robeco Bluechip Equity Growth Direct Plan | 15.15% |
| IDBI India Top 100 Equity Growth Direct Plan | 14.59% |
| Kotak Bluechip Growth Direct Plan | 13.90% |
| Mahindra Manulife Large Cap Pragati Yojana Growth Direct Plan | 13.53% |
| UTI Master share Unit Scheme Growth Direct Plan | 13.28% |
| Baroda BNP Paribas Large Cap Growth Direct Plan | 13.00% |
| ICICI Prudential Bluechip Growth Direct Plan | 12.54% |
| Mirae Asset Large Cap Growth Direct Plan | 12.31% |
| SBI Blue Chip Growth Direct Plan | 12.16% |
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Who Should Invest in a Large Cap Fund?
- A large-cap fund is best suited for investors who want to avoid the volatility associated with mid-cap and small-cap funds. Large-cap companies are industry leaders and have an established presence, so there are fewer chances of significant fluctuations in their stock price.
- Note that although these schemes are more stable than other equity funds, their performance is impacted by the price fluctuations in the stock market. Hence, individuals who have the ability to bear the risk should consider investing in large-cap funds.
- Investors who wish to get exposure to equity shares of the top companies in India without paying a substantial amount can consider investing in large-cap mutual funds.
Investors need to assess their investment objective and investment time horizon before allocating funds to large-cap mutual fund schemes. These funds will only be helpful to investors if they remain invested in these equity funds over the long term. It might not provide sufficient returns in the medium to short term.
Advantages of a Large Cap Fund
Here are the advantages of large-cap funds:
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Investment stability
Large market cap companies have a stable outlook. They have definite plans, consistent revenue growth, and diversification. It allows them to withstand times of economic turbulence; rarely will you see any big company facing solvency issues due to the macroeconomic conditions.
Equity funds investing in these companies have historically delivered consistent returns. Therefore, investing in a large-cap fund is a relatively safe option for investors seeking equity exposure.
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Capital appreciation
Blue-chip companies have a strong market presence along with stable earnings. As a result, their stock price is not subject to significant fluctuations, which negates the prospects of heavy losses for investors. Over the long term, these funds can provide a capital appreciation for their investors.
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Liquidity
These funds are associated with high liquidity. As they invest in stocks of large-cap companies, investors may find it easy to liquidate their investment. This high liquidity also helps investors minimise losses in case of high market volatility.
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Informed decision
It is easy for investors to get information about the stocks that the fund invests in. They can access their financial statements, goals and details about the fundamentals. All these allow the investor to decide whether he/she should invest in a particular large-cap fund or not.
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Withstands economic turbulence
The size and scale of operations of large-cap companies allow them to typically resist or withstand any economic headwinds. These are professionally managed by people who have years of experience handling and coming out of difficult market conditions.
Hence, investors will not see a significant erosion of their capital or investment amount if they go for investment in large-cap funds.
Taxation of Large Cap Funds
Short-term capital gains tax at 15% is applicable on gains arising from the sale of units of a large-cap fund when the holding period is less than 12 months. On the other hand, gains earned from selling the units after 12 months are subject to long-term capital gains tax at 10%.
However, gains of up to Rs. 1,00,000 are exempt from LTCG tax. The rate of taxation in the case of LTCG is 10% without indexation benefit.
Things to Consider before Investing in a Large Cap Fund
Before investing in large-cap funds, consider these factors:
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Investment objective
Before making any investment decision, you must consider whether the investment will be able to fulfil your objective or not. It is important to analyze whether the fund’s objective aligns with your investment goals.
These funds are more likely to fulfil long-term investment objectives like building a corpus for children’s marriage or higher education, buying a house, etc. You must invest in these funds only after considering your financial goals.
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Risk appetite
Large-cap equity funds are less risky than mid-cap and small-cap funds. Assess your risk profile before investing in a large-cap fund.
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Expense ratio
One must consider the expense ratio of different mutual fund schemes belonging to the same fund category before investing. The expense ratio directly affects the returns of investors. So, it is an essential factor that one must consider before investing.
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Fund manager’s performance
Before investing in any mutual fund scheme, one must go through the fund manager’s track record. The fund manager plays a vital role as they are actively involved in the buying-and-selling decisions.
If the fund manager’s decision is incorrect, it will affect the portfolio’s returns. Therefore, it is important to invest in a large-cap fund that an experienced fund manager manages.
Final Word
Large-cap funds invest in equity shares of large-cap companies. These mutual fund schemes can help an investor achieve the goal of capital appreciation over the long term. This detailed guide on large-cap equity funds will help them make an informed decision.
Frequently Asked Questions
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Can I invest in large-cap funds via SIP?
You can invest in a large-cap mutual fund scheme via a systematic investment plan (SIP).
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What are the risks associated with a large-cap fund?
Large-cap funds’ most significant disadvantage is that they have historically offered a modest return compared to small or even mid-cap returns. They do not provide quick wealth accumulation.
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