What are large cap funds

Large cap funds are a type of mutual fund that primarily invest in stocks of large capitalisation companies. The term “large cap” is an abbreviation for “large market capitalisation”, and it indicates the aggregate market value of a company's outstanding shares.

Market capitalisation classifications typically segregate firms into large cap, mid cap, or small cap, based on their overall market valuation. The large cap category typically includes firms with the highest market value within this spectrum.

As per SEBI circular dated 6th October 2017, the top hundred companies in terms of full market capitalization are classified as large cap companies.

Features of large cap funds

A defining feature of large cap funds is their asset allocation strategy. Large cap mutual funds allocate their assets to leading, mature firms recognised for their significant market value, robust financial health, and a proven track record. The portfolio construction of such funds prioritises equities that exhibit relatively low volatility, consistent dividend payouts, and a sustainable growth trajectory.

The risk profile associated with large cap funds is often considered to be on the lower side when compared to their mid and small cap counterparts. The reason behind the reduced risk is the inherent stability of the underlying assets, essentially blue-chip companies that have demonstrated resilience against economic downturns and possess strong balance sheets with minimal liabilities.

Benefits of investing in large cap mutual funds

Relative Stability and consistency: Large cap mutual funds have a reduced exposure to abrupt market downturns due to their investment in established firms with diverse revenue channels. These firms, being stalwarts in their domains, generally possess inherent robustness against market volatility.

Returns: While large cap funds may not yield substantial short-term returns, they have historically delivered reasonable long-term returns. This performance trajectory can make large cap funds a suitable choice for capital appreciation over extended durations

Liquidity: The shares of large firms enjoy a considerable trading volume in stock exchanges, ensuring high liquidity. This liquidity implies that investors can execute buy or sell orders without inducing substantial price oscillations.

Professional management: Like other schemes, even large cap mutual fund schemes benefit from the stewardship of seasoned professionals who employ extensive research methodologies to select optimal stocks. This expert oversight offers a strategic edge to investors, especially those who might lack the resources or expertise to analyse the extensive array of available stocks.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.