How is large cap fund for investment? Is it risky?Asked
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. Market capitalization is calculated by multiplication of the number of outstanding shares company offered with the current market price of one share. Each category of market capitalization categories has its own advantages and disadvantage.
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 might generate wealth slowly and steadily for their investors.
Large cap funds have great future prospects in Indian under its current economic situation. 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 ₹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, if you are thinking of investing a lumpsum amount or for longer duration, large cap funds are just perfect choice for you. Large cap funds may give you good returns on your lumpsum investment over the long term. The companies in the large cap funds portfolio are steady compounders and pay dividend on regular basis. They are ideal for investors with low risk appetite. With large cap funds adopt a long-term perspective, be patient and remain invested to get good returns over the long term.
Some examples of popular large cap Funds for 2017:
1. Reliance Top 200 Fund
2. Quantum Long-Term Equity Fund
3. Aditya Birla Sun Life Top 100 Fund
Large cap mutual funds are types of equity mutual funds in which the fund invests in stocks of companies having large market capitalization. Market capitalization can be defined as the number of outstanding shares of a company multiplied by the price of a stock.
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. On the risk side, large cap funds deliver steady returns with relatively lower risk in comparison with small cap and mid cap funds. An investor having low risk appetite and a long term perspective towards investments can reap good returns over the period.
However, large cap funds can underperform during the upward movement of market in comparison with small cap and mid cap funds. 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. Below are the top performing large cap funds:
A mutual fund described in terms of market capitalisation indicates the size of the companies in which the fund invests. Market capitalisation is defined as the number of shares outstanding multiplied by the current market price of one share.
Large cap funds refers to those funds which invest a larger proportion of corpus in companies with large market captalisaton. These companies are usually reputed, well established companies with strong corporate governance practices. These corporate houses have generated wealth for their investors over a long period of time. Due to their reputation and standing such corporates are highly followed and researched. Large cap funds are known for offering stable and sustainable returns over a period of time. However, these are usually out performed by small and mid cap companies since they have higher risk exposure and therefore a higher return. Large cap funds are ideal for those investors who have a low risk appetite and would like to buy and hold. The reason small and mid cap funds are better is that they invest in companies that have more ability to produce returns through businesses that are growth oriented and dynamic.