Using large and mid cap funds for diversification and growth

Large and mid cap funds can combine the relative stability of large-cap companies with the growth potential of mid cap ones. This dual characteristic can make them a good fit for investors with a moderate-to-high risk appetite seeking to diversify their portfolios and build wealth over time. Here’s a look at how large and mid cap fund investment helps in diversification and growth potential.

• Table of contents

1. Understanding large and mid cap funds
2. How large and mid cap funds help in diversification and growth?
3. FAQ

Understanding large and mid cap funds

According to SEBI, large-cap companies are those ranked between 1 and 100 in the stock exchange based on market capitalisation, while mid-cap stocks belong to companies ranked between 101 and 250. As well-established companies, large cap firms tend to offer relatively stable returns, whereas mid-cap companies with strong fundamentals have the scope for significant growth as they aim to reach their full potential. A large and mid cap fund must invest at least 35% of its portfolio in large cap stocks and the same amount in mid cap stocks.

How large and mid cap funds help in diversification and growth

Diversification is an important aspect of any investment strategy. By spreading your investments across different asset classes and sectors, you can potentially mitigate the risk that comes with investing in a single stock or sector.

Large and mid cap funds ¬– by investing across market caps and sectors – are inherently diversified and give you exposure to more than one market segment. This ensures that your portfolio is not overly concentrated in either large or mid cap stocks but instead spread across a range of companies with varying growth potential and risk profiles.

Moreover, a well-planned large and mid cap fund would also invest in different sectors of the economy. This sectoral diversification further reduces the possible risk of investing in a specific industry. For example, if one sector is underperforming, the performance of other sectors can potentially help offset the losses.

This fund’s growth potential comes from the mid cap allocation. Mid cap companies are often in their expansion phase and have the potential to outperform more established companies. By investing in mid-cap stocks through large and mid cap funds, investors can tap into this growth potential and diversify their portfolio beyond pure large-cap stocks.

On the other hand, large-cap stocks offer relative stability and a proven track record. These companies are typically market leaders in their respective industries and have a history of delivering consistent returns. By including large cap stocks in your portfolio through large and mid cap funds, you can potentially mitigate the risks associated with investing solely in mid cap stocks.

Conclusion
Large and mid cap funds offer investors an opportunity to diversify their portfolio across market capitalisations and sectors. By investing in these funds, investors can potentially benefit from the relative stability of large cap stocks and the relatively high growth potential of mid cap stocks. Diversification is a key aspect of any investment strategy, and large and mid cap funds provide an effective way to achieve this diversification.

FAQs

How do large and mid cap funds differ from large cap funds?
Large and mid cap funds invest in both large and mid cap stocks – with a minimum allocation of 35% in each – whereas large cap funds focus predominantly on large cap stocks.

How do large and mid cap fund help in diversification and growth?
A. Large and mid cap fund investment help in diversification and growth by investing in a mix of large cap and mid cap stocks. These funds diversify your exposure across different market segments and sectors. Such funds can benefit from the relative stability of large cap stocks and the growth potential of mid cap 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.