May 28, 2022

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Large Cap funds, as the name suggests, are the funds that are invested in the companies, marked under large market capitalisation. Large-cap companies are highly developed participants and carry an exceptional track record with steady corporate governance practices.

Such companies are prominent in the market and followed mainly by investors. They are the biggest wealth generators for their investors as they gradually build wealth for them. Though these funds are called large-cap funds, the risk is comparatively low compared to small-cap and mid-cap funds. Risk-averse investors are an ideal match for these funds. However, investors need to be patient as large-cap funds are long-term investments.

Who can invest in Large Cap Funds?

Large-cap funds attempt to offer better capital admiration over the long term and issue dividends on a relatively regular basis. These large-cap funds are perfect for individuals/investors who wish to make systematic use of their equity funds and don’t want their returns to be volatile with time. As large-cap funds are known for being financially stable, they are able to withstand bear markets.

These funds bring steadiness to your investment profile so that you may plan to adjust your investment focus around them, thereby making these funds form a significant part of your investment profile. The main aim here is to continue investing, especially when the market is down, to reverse the loss effect.

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But when these large-cap funds become contrary to mid-cap and small-cap funds in the market, they may fail to give you the desired return on your investments.

Because these funds are dependent on your investment outlook, you must at least invest in them for five to seven years to get the best returns. Don’t misunderstand that these funds are resistant to any downfall, but they are more favourable to hold on against a slowdown.

However, investors who wish to take higher risks should go for small-cap or mid-cap funds.

Points to evaluate as an Investor Before Investing in Large Cap Funds:

Market Risk

Although moderately, large-cap funds are prone to market risks. Unlike the small and mid-cap funds, the Net Asset Value (NAV) does not vary drastically due to a shift seen in the benchmark. These funds give stability to your investment profile, and you may want to streamline the root of your investment around them. Although, down performance during a market reassemble often becomes the cost of transcending during a collapse.

Return on Investments

When you invest in large-cap funds, don’t expect them to perform variably, for they carry a history of many years that indicates significant performance even when the market is high or low. So expect returns from these funds to be less turbulent before you think of investing your funds here. However, do not expect very high returns either, even though the market is at its peak.

Expense

Large-cap funds usually charge a cost to manage your investment portfolio, also called an expense ratio. This cost comes in a percentage form of a standard Asset Under Management (AUM) and displays the efficient performance of the funds. The regulatory board (SEBI) Securities and Exchange Board of India has directed the upper limit of the cost ratio at 2.50%. Taking into consideration the lower returns on investing in these funds, as opposed to small-cap and mid-cap equity funds, these funds with a comparatively lower expense ratio and long-term investment, on the other hand, shall help in getting back the lost money due to low performance.

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Investment Purview

Large-cap funds are feasible for those investors who carry a long-term view. These funds face immense down performance when the market collapses, which is otherwise compensated in the long run when the funds are invested for more than seven years, yielding returns in the range of 10 – 12%. Therefore, you need to be mentally prepared to twig around for at least the said period to help the fund gain its full power.

Investment Goals

New and promising investors who want to explore the equity market but are sceptical of risk involvement can develop their investment portfolios within these large-cap funds. However, these funds can also be fruitful if you are planning for your retirement. An accumulation of stable returns, minimal risk, and appreciative tax treatment in this fund can prove to be an ideal investment for the investors/individuals.

Taxable Capital Gains

While redeeming units of large-cap funds, you receive taxable capital gains. The tax rate depends on how long you have been stable in investing in the equity market. There are two types of capital gain tax which is ideally levied.

Short Term Capital Gain (STCG) – A tax rate of 15% is charged on capital gains earned up to one year of the holding period.

Long Term Capital Gain (LTCG) – A tax rate of 10% is charged on capital gains earned over Rs. 1 Lakh

LIC MF Large Cap Fund has 95.95% investment in Indian stocks, of which 81.16% is in large-cap funds. This large-cap fund ranks 4th on the Crisil board of ratings. Canara Robeco blue-chip equity fund – Direct Plan-Growth, IDBI India Top 100 Equity Fund Direct Plan-Growth, Axis Blue Chip Fund – Direct Plan-Growth, etc., are other best funds in the large-cap category.

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The prices of stocks and detailed valuation of the same are mentioned in the app called Kuvera for investors to review.

Kuvera is an Indian Investment App that is a one-stop platform for investing in Mutual Funds, Stocks, and Gold. It is registered with SEBI and offers a great valuation of US stocks, making it easy for you to make buying decisions. The prices of stocks and other details are mentioned in the app for investors to review.

Source: Economic Times, Clear Tax, ET Money, Money Control