There are a large number of mutual funds in the market and almost all of them are good for investing your money to gain a sound return on the investment. Funds where a large proportion is invested in large sectors which are relatively more secure, are known as large-cap funds. The large-cap companies have big market capitalization and they are known as the ones which offer stable and secure returns over a sustained period of time. It has lower risk exposure compared to mid and small-cap funds and hence offers lower returns.
We should know how large-cap funds function. The large cap funds, as stated earlier, are invested in companies which have large market capitalization. These companies are better managed and have better corporate governance. Your money invested in them grows gradually but more securely compared to other types of funds. This is why it is followed by many investors and it is a favourite amongst investors who are either new or have low-risk appetite, or both.
According to SEBI categorization, the criterion to be a large-cap company is that the company should be one among the top 100 companies in the corporate world. Naturally, investors with an aversion to risks invest in these funds for greater security. If you wish to invest in these funds, you should have a longer time horizon and a lot of patience. In the end, you will gain a fantastic return without a doubt.
There is a chance that large cap funds might underperform as compared to midcap and small-cap funds. These funds try to provide you with better capital appreciation over a longer period of time. They also provide dividends regularly. These funds are for those investors who are interested in taking advantage of the equity market but don’t want their fund to fluctuate intolerably. These funds are for people who want their fund to function stably during the bear phase of the Sensex.
One should invest when the market is down so that one can reap a rich harvest when the market moves upwards. It also nullifies the effect when there is a volatile phase in the share market. You should have an investment duration of at least 5 years to invest in these large cap funds. Although these funds are not absolutely immune to risk, they are more or less stable during a downturn. So, if you want stability and there is a longer time horizon, you should opt for large cap funds.
Large cap funds too are subject to market risks but in a moderate fashion. Their NAV does not fluctuate much in spite of ups and downs in the Sensex. These funds are popular because they provide greater stability to your portfolio. So, there is a risk but it is at a minimal level. There is one more thing to remember regarding investments in a large cap fund. When you redeem your units, there is a provision that you will earn capital gains. Your capital gains will also be taxed likewise. This taxation will depend on the time period for which you stay invested.