What are large cap funds

A large cap fund is a type of mutual fund that primarily invests in stocks of companies with a large market capitalisation. The term “large cap” (an abbreviation of large market capitalisation) 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 capitalisation 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 and well-established firms that are typically known for their significant market value, robust financial health, and a proven track record of sustained performance. 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 relative 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

The relatively low volatility of large cap stocks can make such funds suitable for investors seeking to balance long-term growth potential with risk mitigation. Additionally, large cap funds offer the following benefits to investors:

Relative stability and consistency: Large cap mutual funds have 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. However, it is important to note that past performance may or may not be sustained in the future.

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.