Sure, mutual fund investments involve market risk, especially when the underlying asset is equity. But, did you know that you can minimise your risk and earn steady returns even with equity funds?
Yes, equity mutual funds are divided into various sub-categories based on the fund’s investment approach, sector of investment, market capitalisation, etc. Within actively managed funds, large-cap funds make investments in stocks of companies with a large market capitalisation, thus offering steady returns. Let us understand more about them.
What are large-cap funds?
Funds that invest a significant portion of their corpus in companies with a large market capitalisation are known as large-cap funds. Large-cap companies are well-established players with a track record of consistently good financial performance. The three adjectives often associated with a large cap company are –
Since these companies follow strict corporate governance practices and pay their investors steady dividends, large-cap mutual funds are a safe investment option. They are especially ideal for those with a low risk appetite.
Additional Read: What are Large Cap Funds? How are They Different from Mid Cap?
Features of large cap funds
• They offer stability to your portfolio
Since large-cap funds primarily invest in financially sound and established companies known to generate consistent revenue for years, they remain unaffected by market fluctuations. As a result, you can enjoy stable and steady returns on your investment.
• They are suitable for long-term investment goals
When you invest in chip companies known for high performance and stable earnings, you enjoy gradual but steady growth. This is because most of these companies have already achieved their maximum potential for growth or are nearing it. So, investors of large-cap funds can see capital appreciation over the years.
• They are highly liquid
Purchasing and selling large-cap mutual funds is easy since they are highly popular among investors. The liquid nature of these funds is beneficial during adverse market conditions, especially volatile stretches. You can sell your fund units with ease and redeem your earnings.
• They offer multi-sector diversification
Large-cap funds invest their capital in niche companies from multiple sectors. Naturally, your portfolio then benefits from risk diversification. You need not invest in individual sectors or monitor each sector’s performance continually.
What is large cap and mid cap and small cap: A comparison
It would be unfair to discuss large cap funds without mentioning its sibling fund options – small cap and mid cap. Let us draw a comparison between the three.
|Point of distinction||Large-cap funds||Mid-cap funds||Small-cap funds|
|Capital investment||Invest significant portion of their capital in blue-chip companies||Invest a greater portion of their capital in mid-sized companies||Invest a major portion of their capital in rapidly growing small-sized companies|
|Investment horizon||Long-term||Medium term||Short term|
|Suitability||Risk-averse investors||Investors willing to take moderate risks||Investors with high-risk appetite|
Additional Read: Budget 2021 Impact and Analysis
Want to start your investment journey today? Start with Tata Capital’s Moneyfy app! Compare between different large-cap mutual funds from the comfort of your home and become investment-ready today.