I am looking to invest a lumpsum amount in mutual funds. I have already good exposure to debt funds (more than 50%), the remaining amount I want to invest in equities. Should I invest in Large-cap funds or Multi-cap funds?Asked
Once you have decided to invest in equity funds, the next question arises is to invest in which category of funds – Large cap funds, mid cap funds or small cap funds. These funds have been categorized on the basis of market capitalization of stocks of companies.
If you are planning to invest a lumpsum amount in equity markets, we would suggest you to invest in large cap funds. The rationale behind this investment is that large cap funds comprise of companies having large market capitalization.
Companies with large market capitalization have strong corporate governance, and are already proven in the industry. They are highly followed and well researched in the market. They have an endeavor to provide better capital appreciation over the long term. Being financially strong, they have the capability to bear the market downturns. On the other hand, mid cap and small cap funds are hardest hit during the downturn period or bearish market. The underlying companies in the large cap portfolio provide regular dividends to the investors. These funds are ideal for investors who want equity exposure and high quality stocks of established companies.
Large cap funds provide stability in your portfolio due to less volatility. An investor can withdraw the amount any day from these funds and hence, they provide flexibility. If redeemed before one year, the fund charges an exit load on these funds but it varies. Also, the foreign institutional investors invest mostly in large cap funds and the conventional nature towards large companies make these funds liquid and safe place to invest for the investors.
Another way to invest lumpsum amount is through STP (Systematic Transfer Plan). For investing a lumpsum amount, you always want to invest at the lowest price. But knowing the current price is high or low is challenging. STP is an automated way of transferring money from one mutual fund to another. You can transfer the money from the debt funds to equity funds through STP. To know more about STP, please go through the below link:
Top performing large cap funds :
Thinking of investing in an equity mutual fund, it is very crucial to decide on most appropriate market capitalization to choose the fund from – i.e. among large cap, mid cap, small cap, sectoral cap or multi-cap fund category. Each category of market capitalization categories has its own advantages.
But for investing a lumpsum amount you should consider large cap funds. Though investment in multi-cap funds provide considerable flexibility to invest across multi-cap category, but large cap funds stands out on their nature of providing stability in the portfolio. In large cap fund, a large portion of investment is done in companies with large market capitalization. These companies are strong, reputable and trustworthy. Large cap companies are mature and firmly established players in the market having a strong corporate governance practices. Also, these companies are well researched and highly followed in market. Over a long term, these large cap funds will generate wealth slowly and steadily for their investors.
Multi-cap funds are risky as compared to large cap funds and depend a lot on the ability of fund manager. So, for investment lumpsum you need to invest in much safer large cap funds, with which you will be nearly assured of getting returns on your investment.
Our Indian stock markets depends a lot on Foreign Institutional Investors (FII) flows though the domestic buyers also catching up fast. FII mostly invest their money in the stocks of large capitalization companies. With the boost in ranking of Indian in ease of doing business and latest capital infusion of INR 2.11 Lakh crore in Public Sector Banks (PSB), Indian economy is on recovery track, which will in term bring in more investment from FII in these large cap companies. So, there is a great future prospects for large cap funds in India.