Large cap mutual funds are mutual funds that invest primarily in stocks of large-cap companies. Large-cap companies are generally defined as those with a market capitalization of over Rs 20,000 crore. These large, established companies tend to be leaders in their respective industries and have steady growth and solid dividend records. Large cap funds can provide several benefits to investors looking for core equity exposure.
Best Large Cap Mutual Funds
Nippon India Large Cap Fund – Direct Plan – Growth
- AuM: 20,217.64 Cr
- 6M: 19.02%
- 1Y: 36.51%
- 3Y: 24.52%
- 5Y: 18.32%
- 10Y: 18.65%
Bank of India Bluechip Fund – Direct Plan – Growth
- AuM: 114.71 Cr
- 6M: 23.79%
- 1Y: 36.25%
Invesco India Largecap Fund – Direct Plan – Growth
- AuM: 909.48 Cr
- 6M: 17.42%
- 1Y: 33.83%
- 3Y: 18.95%
- 5Y: 17.70%
- 10Y: 16.86%
JM Large Cap Fund – (Direct) – Growth
- AuM: 73.80 Cr
- 6M: 22.17%
- 1Y: 33.67%
- 3Y: 18.78%
- 5Y: 16.98%
- 10Y: 15.55%
HDFC Top 100 Fund – Direct Plan – Growth
- AuM: 30,261.72 Cr
- 6M: 20.21%
- 1Y: 33.33%
- 3Y: 21.72%
- 5Y: 17.06%
- 10Y: 16.59%
Quant Large Cap Fund – Direct Plan – Growth
- AuM: 424.63 Cr
- 6M: 24.12%
- 1Y: 32.97%
Bandhan Large Cap Fund – Direct Plan – Growth
- AuM: 1,299.07 Cr
- 6M: 17.76%
- 1Y: 32.63%
- 3Y: 16.63%
- 5Y: 17.05%
- 10Y: 14.74%
ICICI Prudential Bluechip Fund – Direct Plan – Growth
- AuM: 47,928.62 Cr
- 6M: 19.36%
- 1Y: 30.66%
- 3Y: 19.88%
- 5Y: 18.11%
- 10Y: 17.12%
ITI Large Cap Fund – Direct Plan – Growth
- AuM: 225.97 Cr
- 6M: 18.19%
- 1Y: 30.21%
- 3Y: 16.54%
Edelweiss Large Cap Fund – Direct Plan – Growth
- AuM: 685.68 Cr
- 6M: 15.32%
- 1Y: 29.63%
- 3Y: 17.42%
- 5Y: 18.20%
- 10Y: 16.35%
HSBC Large Cap Fund – Direct Plan – Growth
- AuM: 1,678.16 Cr
- 6M: 16.99%
- 1Y: 29.40%
- 3Y: 15.28%
- 5Y: 16.81%
- 10Y: 15.12%
DSP Top 100 Equity Fund – Direct Plan – Growth
- AuM: 3,340.00 Cr
- 6M: 17.10%
- 1Y: 29.10%
- 3Y: 14.85%
- 5Y: 15.16%
- 10Y: 13.85%
Baroda BNP Paribas Large Cap Fund – Direct Plan – Growth
- AuM: 1,693.42 Cr
- 6M: 17.79%
- 1Y: 29.09%
- 3Y: 16.89%
- 5Y: 18.49%
- 10Y: 17.09%
Features of Large Cap Mutual Funds
- Invests in stocks of large, established companies – Large cap funds invest at least 80% of assets in stocks of large companies with market caps exceeding $10 billion. This provides exposure to stable, blue chip companies.
- Seek capital appreciation – The primary goal of large cap funds is to provide long-term capital growth as the share prices of large companies increase over time.
- Pay dividends – Many mature large cap companies generate steady earnings and pay regular dividends to shareholders. Large cap funds can be a good source of dividend income.
- Diversified portfolios – Large cap funds typically hold anywhere from 50 to 100 stocks across various sectors, providing diversification to reduce portfolio risk.
- Low expense ratios – Due to economies of scale from their large asset bases, large cap funds tend to have lower expense ratios than mid or small cap funds.
- Lower volatility – Large cap stocks tend to have lower volatility compared to smaller companies, given the stable nature of their operations. This makes large cap funds less risky than small or mid cap funds.
How to Select Large Cap Funds?
Here’s how you can select the best large cap mutual funds for your portfolio:
- Analyze historical performance – Look at the fund’s long-term returns over 3, 5 and 10 year periods. The fund should consistently outperform its benchmark and peer funds in the category.
- Assess risk-return profile – Choose a fund with below average volatility and steady returns over market cycles. Lower standard deviation indicates lower volatility.
- Evaluate fund manager experience – Funds managed by managers with a long tenure tend to outperform. Choose a fund with an experienced fund management team.
- Check portfolio concentration – Prefer funds with a wider stock holding universe that are not overly concentrated on a few sectors or stocks. This reduces company-specific risks.
- Analyze portfolio characteristics – Look for large cap funds holding high quality stocks with strong earnings, dividends and cash flows trading at reasonable valuations.
- Consider expense ratio – Lower expense ratios reduce the drag on fund performance over long periods. Compare costs before selecting a large cap fund.
- Review fund house reputation – Pick large cap mutual funds from reputed AMCs with a solid investment process, risk management and research capabilities.
Why Invest in Large Cap Mutual Funds?
- Potential for capital appreciation – Large cap companies are often industry leaders with steady growth, which leads to capital appreciation over long periods as stock prices increase.
- Lower volatility – Due to their size and maturity, large caps display greater stability and lower price volatility compared to mid or small caps. This makes large cap funds less risky.
- Dividend income – Most large companies have high cash flows and consistent earnings, allowing them to pay regular dividends. Large cap funds provide a steady income stream.
- Diversification benefits – Investing across 50-100 large cap stocks from different sectors reduces concentration risk and volatility through diversification.
- Liquidity – Large cap stocks have high liquidity in terms of trading volumes. This makes it easier to buy and sell these stocks at fair prices.
- Transparency – Large companies are closely tracked by analysts and business media, bringing greater transparency through coverage and analysis.
- Cost efficiency – Due to economies of scale, large cap funds tend to have lower expense ratios, enhancing returns for investors.
- Suitable core holding – The relative stability and diversification of large caps makes them ideal core portfolio holdings for most investors.
How do Large Cap Mutual Funds Work?
Overview of how large cap mutual funds work:
- Large cap funds pool money from thousands of investors to form a large investible corpus.
- Professional fund managers use this pool of capital to create a diversified portfolio of stocks of large companies spread across sectors.
- As per SEBI rules, large cap funds must invest a minimum of 80% of assets in large cap stocks, providing core exposure to large quality companies.
- Fund managers actively manage the portfolio, researching companies and making buy/sell decisions to generate returns higher than the benchmark.
- The fund issues units to investors in proportion to their investment amount. The number of units changes with new inflows and redemptions.
- Unit holders can redeem units at any point based on the fund’s Net Asset Value (NAV), which is calculated daily based on the market value of the portfolio.
- The fund charges an expense ratio to cover operating costs. This expense ratio reduces investor returns to some extent.
- Returns generated in the form of dividends or capital gains are distributed periodically to unit holders in proportion to their unit holdings.
- Fund performance may diverge from the benchmark index due to active management. This divergence is called the tracking error. The aim is to minimize tracking error.
Thus large cap funds provide a low-cost, diversified and professionally managed exposure to stable large cap stocks.
How to Evaluate Best Large Cap Mutual Funds?
You can evaluate and identify the best performing large cap mutual funds based on these parameters:
- Returns over long periods – Look at 1, 3, 5 year and 10 year returns. Choose funds with good long-term performance compared to category average and benchmarks.
- Risk metrics – Analyze standard deviation, Sharpe and Sortino ratios. Lower volatility and higher risk-adjusted returns are preferred.
- Downside protection – Check bear market returns and maximum drawdown. Choose funds with lower declines in market downturns.
- Portfolio concentration – Ensure fund has 50-100 stock holdings spread across sectors. High concentration raises risks.
- Performance consistency – Prefer funds which have consistently outperformed benchmark and peers across market cycles.
- Fund managers – Pick funds with experienced managers having a long, successful track record of managing large cap funds.
- Costs – Compare expense ratios. Lower costs enhance investor returns over the long run.
- Portfolio turnover – High turnover indicates greater cost and taxation. Reasonable turnover is preferred.
- Investment strategy – Understand fund’s investment approach, philosophy and stock selection process to ensure alignment with your goals.
Thus analyzing both quantitative metrics like returns, risk ratios and qualitative aspects like processes will help you select the right large cap fund.
Advantages and Disadvantages of Best Large Cap Mutual Funds
Advantages of Large Cap Funds
- Higher liquidity – Stocks of large caps have high trading volumes, enabling fund managers to buy/sell them easily.
- Transparency – Large companies are well-researched by analysts, ensuring greater information availability and transparency.
- Stability – Large, established companies generally have more predictable revenues and low volatility in stock prices.
- Dividend income – Many large caps have sturdy earnings to support dividends regularly, providing income to investors.
- Strong corporate governance – Larger companies need to adhere to higher governance standards which minimize corporate fraud or mismanagement risks.
- Superior access – Large cap fund managers can interact with and access senior management of large companies easily given the size of investments.
- Lower costs – Economy of scale enables large cap funds to charge lower expense ratios thereby enhancing investor returns.
Limitations of Large Cap Funds
- Modest growth – Large companies tend to grow at a slower pace than small or mid-caps, reducing capital growth potential to some extent.
- Concentration risk – Portfolios concentrated on a small number of sectors or stocks are vulnerable to downturns in those areas.
- Active management risks – Fund managers may make poor stock picks leading to underperformance compared to benchmarks.
- Interest rate sensitivity – Bond-like attributes of some large caps make their valuations vulnerable to rising interest rates.
- Macroeconomic factors – As leaders in their industries, large caps are exposed to overall economic and business cycles.
- Event risks – Mergers, lawsuits and regulatory actions represent singular event risks that may affect stock prices of even very large companies.
- Opportunity cost – Due to modest growth, large cap funds may underperform highly growing small/mid cap funds for short periods.
Factors to Consider When Investing in Large Cap Mutual Funds
- Investment goals – Match your goals like capital growth or regular income to the fund’s objective. Ascertain if large cap exposure meets your needs.
- Risk appetite – Large cap funds carry lower risk than mid/small caps. Choose fund volatility in line with your risk tolerance.
- Time horizon – Large caps lend stability over long horizons like 7-10 years. Pick other funds for short term horizons.
- Diversification – Ensure the large cap fund provides diversification through holdings across multiple sectors and companies. Avoid concentrated funds.
- Past performance – Analyze long-term returns over 5-10 year periods. Select funds with consistent outperformance over benchmarks.
- Valuations – Do not invest in funds holding expensive stocks. Opt for funds with stocks trading at reasonable valuations.
- Fund managers – Ensure fund managers have necessary experience and expertise specifically in managing large-cap funds.
- Costs – Compare expense ratios of funds before investing. Lower costs enhance returns.
- Investment style – Understand if fund follows a value, growth or blended investment style to match your preferences.
- Exit load – Some funds charge exit load if redeemed before a year. Check this cost before investing.
Thus carefully evaluating your specific needs and doing thorough due diligence is advisable before selecting any large cap mutual fund.
How to start investing in the Best large cap funds 2023?
Step-by-step process to start investing in the best large cap mutual funds in 2023:
- Assess investment needs – Consider your goals, time horizon and risk tolerance to check if large cap funds suit your requirements.
- Shortlist fund options – Use parameters like long-term returns, risk metrics, costs, fund house reputation etc. to shortlist the top large cap funds.
- Review portfolios – Analyze portfolio composition, concentration, valuations and other attributes of shortlisted funds.
- Research fund managers – Ensure fund managers have necessary expertise and a good long-term track record.
- Select 2 to 3 funds – Based on detailed analysis, select 2 to 3 top large cap funds for investment. Avoid concentrating on just one.
- Choose fund type – Based on taxation, opt for Direct plans over Regular plans. Select Dividend or Growth option as suitable.
- Allocate capital – Decide on capital allocation to large caps based on your overall asset allocation plan and risk appetite.
- Open demat account – Open a demat account if you wish to invest in Direct plans or ETFs. This allows paperless investment.
- Start SIP – Systematic Investment Plan (SIP) allows disciplined investing through periodic installments. SIP works very well for large cap funds.
- Monitor & review – Track fund performance periodically and rebalance holdings if needed to ensure optimal returns.
Risks Involved While Investing in Large Cap Mutual Funds
While large cap funds carry relatively lower risk, they are not completely risk-free.
- Volatility risk – Large cap stock prices can be volatile in the short term. Portfolio value will fluctuate based on market movements.
- Underperformance risk – Despite expertise, active fund managers may make poor stock picks leading to returns lower than benchmark.
- Liquidity risk – In case of market dislocations, even large cap stocks can face liquidity issues hampering tradeability.
- Event risk – Specific events like litigation, data breach etc. related to a portfolio company can adversely affect its stock price.
- Sector concentration risk – Portfolios biased towards a few sectors like energy or financials carry risks of downturn in those sectors.
- Macroeconomic risks – Large caps are affected by overall economic and business cycles. Recessions can hamper stock returns.
- Management risk – Change in management personnel or strategies at a company held in portfolio poses risks for investors.
- Regulatory risks – Changes in regulations and government policies pertaining to taxation, environment etc. can affect company earnings and stock prices.
- Valuation risk – Portfolios holding overvalued large cap stocks are vulnerable to sharp price declines when the bubble bursts.
- Inflation risk – Rising inflation hurts large cap valuations, especially for companies trading at high P/E multiples.
- Interest rate risk – Rate hikes by central banks make other assets like bonds attractive, leading to outflows from large cap equities.
To mitigate these risks, investors should stay invested for long periods, maintain portfolio diversification and transparency about fund holdings and business fundamentals.
Who Should Invest in Large Cap Mutual Funds?
Large cap funds form a sound equity foundation suited for most investors’ portfolios provided they have appropriate time horizons. Large cap mutual funds are suitable for these type of investors:
- Conservative investors – Given the stability and lower volatility, large cap funds are ideal for conservative investors who want steady growth with fewer ups and downs.
- Retirees and senior citizens – Retirees looking for lower risk equity exposure to balance their fixed income portfolio should consider large cap funds.
- First-time equity investors – Novice investors starting equity investments should begin with a core large-cap allocation to minimize risk.
- Long-term investors – Those with an investment horizon exceeding 7-10 years would benefit from the long-term capital appreciation potential of large caps.
- Income seekers – Large cap funds provide a regular income stream through dividends that investors seeking monthly income can rely on.
- Core portfolio holding – Most investors should hold a core large cap allocation of around 40-60% as the bedrock for overall asset diversification.
- SIP investors – Those investing through Systematic Investment Plans (SIPs) should focus on large cap funds for core portfolio stability.
Taxability of Large Cap Funds
Taxation of large cap funds is the same as general equity funds. Opting for the Growth option over Dividend can enhance post-tax returns for investors in higher tax brackets.
- Long term capital gains on units held for over 12 months are taxed at 10% beyond Rs 1 lakh per annum. Indexation benefit applies to further reduce tax on gains.
- Short term capital gains on units held for 12 months or less are taxed at 15%.
- Dividend from large cap funds is tax-free in the hands of investors. Dividend distribution tax of 10% is now levied only on the fund house.
- Switching between equity funds after 12 months is considered redemption and attracts 10% LTCG tax.
- Equity funds held for under 12 months incur 15% short term capital gains tax when switched to another fund.
- No tax is levied on switching after 12 months if amount is under Rs 2 lakh and funds belong to same fund category.
- Equity funds qualify for equity-linked tax saving deductions under Sec 80C of upto Rs 1.5 lakh a year.
Conclusion
Large cap mutual funds offer investors an ideal way to gain exposure to stable large companies with longevity and leadership in their industries. Their size and maturity lend stability, making large cap funds less risky and a wise foundation for most portfolios aimed at long term wealth creation.
FAQs
Are Large Cap Mutual Funds risky?
Large cap mutual funds are less risky compared to mid-cap and small-cap funds, owing to the stability and lower volatility of large cap stocks. However, they are not entirely risk-free and carry risks like underperformance, volatility, liquidity etc.
Are large-cap funds taxable?
Yes, large cap funds are subject to capital gains tax and dividends from them are tax-free in the hands of investors. Long term capital gains above Rs 1 lakh are taxed at 10% and short term gains at 15%.
Can I invest in large-cap mutual funds through a SIP (systematic investment plan)?
Yes, a SIP or systematic investment plan is a smart way to invest in large-cap mutual funds as it allows disciplined investing through periodic instalments and rupee cost averaging.
Can large cap funds pay dividends?
Yes, large cap funds can and do provide regular dividend payouts to investors as the large companies they invest in are mature businesses with steady cash flows and earnings to support dividends.
How long should I stay invested in Large Cap Mutual Funds?
Ideally, large cap funds should be held for a long investment horizon of 7-10 years to benefit from their stable growth and capital appreciation potential fully.
How much money should I invest in large cap funds?
As a core portfolio holding, large cap funds should constitute 40-60% of your equity allocation. The actual amount will vary based on your overall portfolio size and risk appetite.
How should I evaluate historical returns and past performance when considering large-cap mutual funds?
Analyze long-term returns over 5 and 10 year periods to choose funds with consistent outperformance over benchmarks and category peers across market cycles.
How to choose the best large cap funds to invest in?
Analyze long-term returns, risk metrics like volatility, fund manager track record, costs, portfolio concentration and investment strategy to zero in on the best large cap mutual funds.
How to invest in large cap funds online?
You can invest in large cap funds online conveniently by registering on fund house websites and AMFI registered investment platforms. Submit eKYC and complete one-time registration to start transacting online.
Is it reasonable to invest in Large Cap Funds?
Yes, large cap funds offer a reasonable investment avenue owing to the stability and lower volatility of large companies. They make sound core portfolio holdings for most investors.
Should I invest in Large Cap Mutual Funds?
Large cap funds are suitable if you have a moderate to high risk appetite and investment horizon of at least 5 years. They offer good growth potential with fewer ups and downs than small or mid-caps.
What are large-cap mutual funds?
Large cap mutual funds invest at least 80% of assets in stocks of large companies with market capitalization exceeding Rs 10,000 crores, offering stability and growth at lower risk.
Why should I consider investing in large cap funds?
Large cap funds provide exposure to quality mature companies with longevity, offer capital growth, lower volatility, liquidity and diversification benefits making them ideal core holdings in a portfolio.
What are some of the best large-cap mutual funds in India?
Some top rated large-cap funds are Axis Bluechip Fund, Mirae Asset Large Cap Fund, HDFC Top 100 Fund, Canara Robeco Bluechip Equity Fund and SBI Blue Chip Fund.
What are the benefits of investing in Large Cap mutual funds?
Benefits include lower risk than mid/small caps, capital growth from leading companies, diversification across sectors, stability and lower volatility, dividends and liquidity.
What are the expected returns of large cap funds?
Large cap funds can generate around 12-18% returns over long periods of 7 years or more. Expected returns are lower than mid/small caps but with much lower volatility.
What are the risks involved in investing in large cap funds?
While lower than mid/small caps, risks include volatility, regulatory changes, event risk, liquidity risk, concentration risk, underperformance risk and vulnerability to economic cycles.
What factors to consider before investing in Large Cap Funds?
Consider your goals, risk appetite, time horizon, performance history, fund manager expertise, costs, portfolio concentration and investment style before picking large cap funds.
What kind of returns can I earn from Large Cap?
You can expect 10-15% CAGR returns from large caps over long investment tenures of 7-10 years. In the short term, returns vary based on market conditions.
What kind of returns can I expect from large-capitalization stocks?
On an average, large-cap stocks generate returns in the range of 12-18% over long 5-10 year periods. However, returns vary based on specific stocks selected and prevailing market valuations.
What role does diversification play in large-cap mutual funds?
Diversification across 50-100 large cap stocks from different sectors reduces concentration risk and volatility in large-cap funds, making them less risky.
Where do Large Cap Mutual Funds invest?
Large cap mutual funds invest predominantly in stocks of large established companies with market capitalization higher than Rs 10,000 crores to provide a diversified core portfolio holding.
Which funds are a better investment option – small-cap or large-cap funds?
For conservative investors, large-cap funds are a better option due to lower volatility and risk. Aggressive investors can consider higher growth potential of small-cap funds despite higher risks.
Which is better large-cap or mid-cap fund?
For stability and lower risk, large-cap funds are better. But mid-cap funds can deliver higher growth over long-term despite higher volatility. Choice depends on risk appetite and time horizon.
Why should I consider Large Cap Funds as a potential investment?
Large cap funds offer stability, lower volatility, capital growth potential, dividends and diversification making them sound core portfolio holdings suitable for most investors.
