Large Cap funds :funds which invest large portion of investment in those companies which have market capitalization of more than 10000cr. Companies which have large market capitalization are players of ultra marathon. Such companies are firmly established,mature, stable, trustworthy and have strong corporate governance practices.
1) Stability : The large cap funds are less fluctuated as market moves rigorously and they provide stable returns to investors.
2) Capital Growth : As investment is done in large repudiated companies
which have benchmark in market , they tend to provide good returns.( Avg:7.95% For 6 Months , Avg:20-35% For 1yr,Avg:9.5% For 3yrs)
3)Diversity : Such large cap funds are managed by professional fund managers and research analyst which invest the total investment in many sectors which minimizes the risk and returns are good.
Clauses and terms : Some mutual funds have higher management fees than other cap funds and have exit load of 1% if money is withdrawn within a year
In large cap fund, a large portion of investment is done in companies with large market capitalization. Market capitalization is calculated by multiplication of the number of outstanding shares company offered with the current market price of one share.
Advantages of investing in large cap funds:
Disadvantages of investing in large cap funds:
So, if you are thinking of investing a lumpsum amount or for longer duration, large cap funds are just perfect choice for you. They are ideal for investors with low risk appetite.
Advantages of investing in large cap funds are:
· Steady income- Large cap funds invest in large companies which have higher market capitalisation. Such companies usually have a steady flow of cash and therefore have the ability to provide steady income unlike smaller companies. Also, such companies tend to pay out more dividends since they have achieved growth and do not need to reinvest much amount in the company.
· Liquidity- Large cap funds are highly liquid and therefore, have an advantage over mid cap funds.
· Low risk- Such large companies usually hold a relatively larger share of the stock market. This reduces risk in various ways. For instance, public information is always available on large companies, we can analyse their past performance, large cap stocks are easier to sell since these companies are well known. The risk of capital loss is negligible compared to small and mid cap companies.
· Stability- Large cap companies are usually stable and this makes it difficult for them to go out of business. Hence, large cap funds are a better investment than small cap funds. Such companies are also less affected during economic instability.
Disadvantages of investing in large cap funds are:
· Not meant for risk takers- Investors who are willing to take risks in return for higher returns would not prefer large cap funds since these provide a stable and regular income at low risks. There is no additional income in a growing market.
· Not a good investment for short term- Large cap funds are suitable for long term capital appreciation and not for generating income in the short term.
· Low returns- Large cap funds provide lower returns than mid cap and small cap funds.
· Less power of ownership- An investor will not have a right over how and when the investment is made since all of such decisions are taken by fund managers.
‘Cap” in Large Cap funds is nothing but the market capitalization of a listed company. Hence, large cap funds represent funds of large companies in terms of market capitalization. It is very important to know about different cap funds (small, mid and large) before you start investing because every fund will provide you different levels of returns, risks and opportunities.
Large cap companies are the ones who have established themselves over the years and have arrived at a large market capitalization in the long run. They reflect steady growth and are trustworthy from the perspective of a large community of investors. Large cap funds providing companies in India include big corporate houses like Tata, Reliance India, Birla, ICICI and others. These corporate houses are financially strong and hence an investor expects regular dividends from them. Advantages and disadvantages of large cap funds are subjective to the portfolio and investor’s investment style.
Major advantages of investing in large cap funds would include:
Major disadvantages of investing in large cap funds would include:
Going for a small, mid or large cap fund totally depends on your time of investment, expectation of returns, and risk appetite. No fund is completely good or bad. Each has its own sets of advantages and disadvantages.
I hope this answers your question. Happy Investing!