Evaluating large and mid cap funds in different market scenarios

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Equity funds that invest in stocks of large and mid-sized companies are known as large and mid-cap funds. These funds can perform differently depending on prevailing market conditions. Here we evaluate how large and mid-cap funds are impacted in bull, bear and volatile markets, and key learnings for investors on large and mid-cap fund investment in different market conditions.

  • Table of contents
  1. Performance in a bull market
  2. Managing a bear market
  3. Strategies for volatile markets
  4. Managing risk across market cycles
  5. Key learnings for investors
  6. FAQs

Performance in a bull market

A bull market is characterized by optimism, rising stock prices, and increased investing activity. In a growing economy, large-cap companies with strong fundamentals tend to benefit as they have better access to capital and resources to fund expansion.

Mid-caps also perform well as increased liquidity lifts valuations across the board. In a bull market, large and mid-cap funds can generate a strong return potential as the broader market sentiments are positive. Investors should remain invested in these funds to benefit from the upside. However, they should be watchful of overvalued stocks and periodic profit booking.

Managing a bear market

A bear market sees extended periods of pessimism, falling stock prices, and low trading volumes. Large caps with stable cash flows and low debt are better equipped to limit downside. Mid-caps carry higher risk as the liquidity squeeze may make them more volatile.

Thus, in a downturn, large and mid-cap funds may see muted returns or even losses as sentiments are generally weak. Instead of panic selling, investors should utilize the opportunity to buy units at lower valuations during corrections. A disciplined SIP can help average out costs.

Strategies for volatile markets

Volatile markets are characterized by wild swings in stock prices with increased uncertainty. Large caps tend to be more resilient while mid-caps witness sharper ups and downs.

In volatile conditions, large and mid-cap funds experience oscillating returns in line with the markets. Investors should avoid knee-jerk reactions and timing the market when making large and mid-cap fund investments in different market scenarios.

Maintaining adequate cash reserves allows one to do bargain hunting during dips. Staggered investing through SIPs can moderate the impact of volatility. Staying diversified across sectors also aids in risk management.

Managing risk across market cycles

Risk management is critical for investors in large and mid-cap funds to limit downside in volatile markets. Some strategies to manage risk for large and mid-cap funds in different market conditions are mentioned below.

  • Maintain balanced asset allocation between equity and debt. Do not overweigh equities when valuations peak.
  • Diversify across sectors, market caps, fund houses, and investment styles to mitigate risks. Avoid concentration in a single sector or small group of stocks.
  • Book partial profits and switch to low duration debt funds at market peaks to minimize any impact on gains. This limits downside if a correction ensues.
  • Use SIPs and STPs to stagger investments over time and average out purchase costs. Avoid lumpsum investments at market tops.
  • Build an emergency corpus in liquid funds to access cash and avoid distress selling of core holdings during downturns.
  • Don't chase last year's best-performing funds. Past success can reverse quickly in equity markets.
  • Evaluate the portfolio periodically and rebalance to the original asset allocation when equity weights rise significantly.
  • Do not panic and sell off during short-term declines. Have patience and remain invested for the long term.
  • Select funds with fund managers who have experienced previous market cycles and have demonstrated the ability to contain declines.

Key learnings for investors

  • Don't time the market, but use corrections to accumulate units at lower prices through SIPs.
  • Manage risk by booking profits at peak valuations and maintaining cash reserves.
  • Staying invested for the long term helps ride out short-term volatility.
  • Focus on fundamentals rather than sentiments while investing.
  • Don't chase last year's best-performing funds. Past returns may not sustain.
  • Select funds with experienced fund managers and consistent long-term track record.

Large and mid-cap funds can generate a reasonable return potential for investors over the long run. However, their performance varies with market conditions. By following a disciplined investment approach focused on fund selection, asset allocation, and risk management, investors can optimally navigate different market cycles. Maintaining realistic return expectations and long-term focus helps in creating enduring wealth. If you are looking for a large and mid-cap mutual fund, consider investing in Bajaj Finserv Large and Mid Cap Fund. It invests predominantly in a mix of large cap and mid cap stocks to balance relative stability and provides growth potential. However, it is always prudent to consult a financial advisor before making any investment decisions. For detailed scheme information, click here.


What are large cap funds?
Large cap funds invest predominantly in stocks of large cap companies. These companies are ranked from 1-100th basis market cap, and they tend to be leaders in their industry and have stable business models.

What are mid cap funds?
Mid cap funds invest primarily in mid-sized companies ranking from 101st-250 basis market cap. Mid-caps offer higher growth potential but can be more volatile.

How can investors manage risk in different markets?
Investors should stay diversified, book profits at peak valuations, maintain cash reserves, invest through SIPs, and not panic during downturns to manage risks across different market cycles and conditions.

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.

Points To Consider?