The companies with a market capitalisation of Rs.20,000 crores or more are known as Large cap companies. Mutual Funds that majorly invest in Large caps are called Large Cap Funds. Here is a descriptive article on Large Cap Mutual Funds defining the meaning, advantages and top funds from the same category:
What are Large Cap Mutual Funds?
A large cap fund is an open-ended equity scheme which invests a minimum of 80% of its assets in the shares of large cap companies i.e. top 100 companies in terms of market capitalisation.
Large Cap Equity Funds are also referred to as Bluechip Funds. The term ‘blue chip’ comes from the game of poker where the blue gambling chips holds the highest value on the table. Similarly, the Blue Chip companies represent those companies from each industry that are well-established, have stable earnings and have the highest market valuation.
Large cap mutual funds help investors maintain their portfolio stability as they are less volatile than their mid cap and small cap counterparts. However, these funds generate relatively lower returns than small cap and mid cap equity funds.
Who Should Invest in Large cap Mutual Funds?
Investments are usually made after a thorough analysis of requirements, risks involved, purpose of investment etc. Large Cap Equity Funds are suitable for:
- Individuals/Organisations who are willing to earn higher profits on their investments
- Investors wanting to opt for an investment option with minimal market risk involved. During Market downturns, Small Cap and Mid Cap Funds are more responsive to economic cycles whereas large cap funds are barely affected. This is because Large Cap companies have a strong presence in the market and soundness in their business plans make them strong enough to sustain during market fluctuations. Hence, the risk involved is minimal
- Midcap and Small-cap Mutual Funds are riskier than Large cap funds. Investors willing to take up a less aggressive investment strategy can invest in large cap funds
- The large cap companies have a record of proficient and consistent performance during the market fluctuations. Hence, the funds associated with these companies are suitable for especially for new or first-time investors
Advantages of investing in such Mutual Funds
Large Cap Mutual Funds provide investors with numerous advantages such as sanity & stability of investment, balanced dividends, simplified valuation etc.
1. Sanity & Stability of Investment
The companies categorised as Large Cap offer stability and sanity to the portfolio of the fund. Since these companies function as establishments under a proficient business plan and sound financial strength, the chances of any hindrance in the revenue-generation or ending up insolvent are very low. Small-Cap & Mid Cap companies are easily affected by the market fluctuations and thus do not offer this stability of return.
2. Balanced Dividend
Again, having an impressive business structure validates the solid track record of the organisations and thus approves of the steady payment of dividends. Consequently, these steady dividend payments give appealing returns for large cap investors. This is an unyielding advantage for investors with conservative investment approach.
3. Simplified Valuation
As these companies are functioning in the market for many years, the formalities of valuing the performance, profits and other financial details becomes easy for the investors. Before making any decision, investors can access the performance history of the companies to construct an accurate portfolio.
Taxation of Large Cap Equity Funds
The Short Term Capital Gains (STCG) from the investments in this fund are taxed at 15%, if the units are sold within the time period of 1 year from the date of allotment. However, the Long Term Capital Gains (LTCG) made on the sale of units priced at over Rs. 1 Lakh, within a year from the date of allotment is taxed at 10% without indexation.
Here is an example: If an investor has made a capital gain of ₹40000 on investment in an equity fund, Short Term Capital Gains Tax of 15% would be levied if s/he withdraws the amount within one year of investment. The payable tax would be ₹6000.
Also, if an investor has made a capital gain of ₹2 Lakh on investment in an equity fund, and withdraws the amount after 1 year of investment, Long Term Capital Gains Tax of 10% would be levied on ₹1 Lakh. ₹1 Lakh is exempted from taxation. The payable tax would be ₹10,000.
Things to be considered before investing
Every investment requires a sufficient amount of research and valuation of factors such as risks involved, history of returns accrued, business proficiency of the holdings etc. Here are some of the things which must be considered by an investor before investing into the Large Cap Mutual Funds:
- Risk & Returns: Majority of investors focus on the two Rs of investment- Risk & Returns. Large Cap Funds are known for giving steady returns will less risk involved as compared to Small Cap Funds & Mid Cap Funds. Also, for a new investor who is not familiar with market downturns, investments in Large companies can be benefiting as they are not largely affected by market fluctuations. So, if you are seeking an investment option to get steady returns at low risk, you can opt for Large Cap Funds
- Financial Goal– Before making any investment decisions, it is very important to evaluate that the fund objective is aligned with your financial goals. Large Cap Funds give better returns to the investors who keep themselves invested for at least 3 to 5 years. If you have a long term investment goal, these funds can be your number one option
- Fund Performance– Measuring the performance of the fund in both bullish and bearish market situations is a necessity as it helps the investors in selecting a reliable fund. One should always choose a fund which has been performing with consistency
- Fund House & Management– There are numerous Mutual Funds regulated by different AMCs (Asset Management Companies). Fund houses & Fund Managers play a very decisive role in the allocation of assets and selection of stocks. If the management has enough experience and expertise, the fund will easily sail through promising market conditions and deliver good returns
- Costs Involved– There are different costs involved in Mutual Fund investments such as Expense Ratio, Entry Load and Exit Load. Investors must review these costs before heading up for investments in order to avoid extra costs
- Other Basics from the Portfolio: There are other different factors such as the fund NAV (Net Asset Value), AUM (Assets under Management) etc. which are to be viewed to make sure of the reliability and investor engagement in the fund
List of top 10 Large cap Equity Funds 2020
|Fund Name||AUM (Cr.)||1-Year Return||3-Year Returns||5-Year Returns|
|Mirae Asset Large Cap Fund||15,897||14.49||14.94||12.65|
|Axis Bluechip Fund||8,749||24.13||19.39||12.11|
|Motilal Oswal Focused 25 Fund||1,184||20.11||12.84||11.85|
|SBI Bluechip Fund||23,585||13.33||11.41||10.83|
|Canara Robeco Bluechip Equity Fund||257||17.94||15.25||10.53|
|BNP Paribas Large Cap Fund||808||21.47||14.19||10.38|
|Nippon India Large Cap Fund||13,091||7.76||13.02||9.95|
|ICICI Prudential Bluechip Fund||24,132||10.04||12.63||9.94|
|Sundaram Select Focus Fund||1,046||16.7||16.2||9.42|
|HDFC Index Fund||544||15.64||15.6||8.83|
(Data as on 13th January 2020; Source: Value Research)
How to invest in Large Cap Funds online?
There are different methods through which one can invest in large cap stocks:
- Offline mode– Visiting the nearest branch office of the fund house and investing in the desired scheme. You must carry all the required documents such as Identity Proof, Address Proof, Cancelled Cheque, Passport size photos, PAN Card and KYC Documents handy. You can also invest offline through a broker. However, this would then be a regular fund and not a direct fund. Think of it like a charge brokerage which gets deducted from the total investment amount.
- Online Portal– If you want a hassle free mode of investing with no commissions and brokerage, you can choose websites like Paisabazaar.com which allow the investors to compare more than 1,700 funds at one platform instead of visiting the website of each AMC and then searching for numerous funds. You can select the fund in which you want to invest, look at the details and compare similar schemes as well as use SIP Calculator or Lumpsum Calculator to estimate the future value of your investment