Everything You should Know About Large and Mid Cap Funds

Posted On: 27 February 2024

Large and mid cap funds are mutual funds that invest primarily in stocks of large and middle-sized companies in terms of market capitalisation. Such funds seek to balance the relative stability of large cap companies – which are typically well-established and have a strong track record of good performance – with the growth potential of mid cap companies that are in their expansion stage.

This can make them suitable for investors seeking growth potential as well as relatively low portfolio volatility.

But before one decides to take the plunge, understanding the right time to invest is crucial. Let's look at the key factors and help you decide—is it a good time to invest in large and mid cap funds?

Table of contents

What are large and mid cap mutual funds?
Features of large and mid cap mutual funds
Benefits of investing in large and mid cap mutual funds
Who should invest in large and mid cap mutual funds
Things to consider before investing in large and mid cap funds
Taxation on large and mid cap mutual funds
How can you invest in Bajaj Finserv Large and Mid Cap Fund?

What are large and mid-cap mutual funds

Large and mid cap funds hold a strategic position within the equity spectrum. These funds invest in both large cap and mid cap stocks. This combined category includes the top 250 companies in India, from established industry giants to mid-sized players on an upward trajectory.

SEBI mandates that large and mid cap funds must allocate at least 35% of their funds each in large cap stocks and small cap stocks.

Features of large and mid cap mutual funds

Large and mid cap funds aim to leverage the relative stability of large cap companies and the growth potential of mid cap companies. Here are some features of large and mid cap funds:

Volatility mitigation: Large cap allocation provides an element of relative stability compared to pure mid cap funds, potentially mitigating the risk of significant losses.

Exposure to growth potential: While large caps offer relative stability, the mid cap allocation offers the potential for significant capital appreciation over the long term.

Diversification: These funds hold a basket of diverse companies across market caps, sectors and themes, spreading risk and mitigating the impact of individual stock underperformance.

Benefits of investing in large and mid-cap Mutual funds

Here are some of the potential advantages of investing in large and mid cap funds:

Balanced risk and return: Large and mid cap funds seek to strike a balance between the relative stability of large cap stocks and the higher growth potential of mid cap stocks. This helps mitigate risk while offering the potential of higher returns than pure large cap funds.

Diversification: Large and mid cap funds offer diversification both in terms of market capitalisation as well as sectors and themes, thus enhancing portfolio resilience.

Professional management: These funds are actively managed by experienced fund managers who monitor market trends and adjust the portfolio composition to optimise the risk/return balance. This relieves you of the burden of individual stock selection and market analysis.

Liquidity: Large and mid cap funds are generally highly liquid, allowing you to trade units on the stock exchange.

Who should invest in large and mid cap mutual funds

Having understood the benefits of these funds, it is now important to understand - who are these funds most suitable for and is it good time to invest in large and mid cap funds?

Consider these mutual fund investment vehicles if:

Long term investment horizon: Large and mid cap funds can be suitable for long term goals (5+ years) as they have the ability to ride out market cycles and benefit from the compounding. Short term investors might be exposed to higher volatility.

Moderate risk tolerance: While less volatile than pure mid cap funds, large and mid cap funds still carry significant risk due to their exposure to equities. If you have a low risk tolerance, consider other options like debt funds or fixed deposits.

Market conditions: Large and mid cap funds might offer a relatively higher return potential during economic and sectoral booms thanks to the growth of mid cap companies.

Things to consider before investing in large and mid-cap funds

Before investing in large and mid cap funds, investors should keep a few factors in mind, listed below. It is also recommended that you consult a financial advisor before making major investment decisions.

Investment objectives: If long-term high growth potential is your primary investment objective, a pure mid cap fund or small cap fund may be more suitable for you. Large and mid cap funds seek to combine growth potential with risk mitigation.

Expense ratio: Compare the expense ratios of different funds. Higher fees can eat into your returns, so choose a fund with a lower expense ratio.

Track record: Analyse the fund's performance history over different market cycles to assess its consistency and risk management abilities.

Investment strategy: Understand the fund's investment strategy and portfolio composition to ensure it aligns with your risk tolerance and goals.

Taxation on large and mid-cap mutual funds

The capital gain and dividends on large and mid cap mutual funds are taxable. For equity funds, if held for more than one year, a 10% long-term capital gains tax is levied. If held for less than one year, a 15% short-term capital gains tax is levied. Additionally, dividends from these funds are taxed as per the investor's income tax slab.

How can you invest in Bajaj Finserv Large and Mid Cap Fund?

Visit the Large and Mid Cap Fund scheme page on www.bajajamc.com. Click on ‘Invest Now’ at the top of the page. You will then be required to

1. Login/Sign-up by entering your PAN
2. If prompted, complete your KYC journey/modification.
3. Provide other basic details such as name, mobile number, email address (if signing up for the first time).
4. Input the OTP sent to your registered mobile number and/or email address.
5. Enter your name as per official records, date of birth and bank details. (For first-time investors)
6. Choose between Lumpsum or SIP based on your investment preference and select your investment amount.
7. Proceed with your investment.
You can also invest through distributors and digital aggregators.

Conclusion

Large and mid cap funds can be a suitable for investors seeking a blend of relative stability and growth potential. By understanding their strengths, considering your investment horizon, risk tolerance, and financial goals, you can make an informed decision about whether they belong in your portfolio. Remember, diversification, thorough research, and professional guidance can help you navigate the market efficiently and make confident investment choices.

FAQs

How do large and mid cap mutual funds work?
Large and mid cap mutual funds invest primarily in stocks of large-cap and mid cap companies, respectively. Large cap companies are the top 100 companies by market capitalization in India and are typically well-established firms that are industry leaders. They tend to be less volatile than smaller companies, with the potential to offer stable returns. Mid cap companies are ranked between 101st and 250th in terms of market capitalization. These are often companies that in their expansion phase and offer significant growth potential, but come with higher volatility and risk compared to large-cap companies

Are mid cap funds similar to large and mid cap funds?
No, mid cap funds exclusively invest in mid-sized companies seeking to tap into the growth potential of these firms. In contrast, large and mid cap funds invest in a mix of both large-cap and mid cap stocks, aiming to balance the relative stability of large-cap investments with the high growth potential of mid cap stocks. This blend provides a diversified approach to investment.

What is the Minimum Amount to Invest in Large & Mid cap Funds?
The minimum investment amount for Bajaj Finserv Large and Mid Cap Fund is Rs 500 for lumpsum as well as SIP.

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.