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Large Cap Mutual Funds

Large-cap funds invest a minimum of 80% of your total investment into large-cap company stocks2. They are best suited for low-risk or long-term investors as they offer stable and sustained returns over the long term. However, they can be outperformed by small and mid-cap funds, which have higher risk.

Mutual fund schemes are categorised based on the market segments they invest in. They can be categorised into large-cap, mid-cap, small-cap, multi-cap, etc.

Of these, large-cap mutual funds are safe investment choices for both seasoned and beginner investors due to their low-risk profile. These funds invest heavily in large-cap market segments, offer steady returns, and are generally considered a safe investment option.

Read on to learn all about large-cap mutual funds, how they work, the pros and cons and how you can capitalise on this investment avenue2

What is a Large-Cap Mutual Fund?

A mutual fund that invests in stocks of large-cap companies is called a large-cap fund. These are managed by professional fund managers who invest a minimum of 80% of your total corpus into large-cap company stocks to offer steady and sustained returns over the long term.
 

What Are Large-Cap Companies?

According to SEBI's rules, all companies listed on the stock exchange are ranked based on their market value/cap. The top 100 companies are categorised as large-cap companies. 

How Do Large-Cap Mutual Funds Work?

Like all mutual funds, large-cap schemes are managed by fund managers. As per the asset allocation guidelines set by the Securities and Exchange Board of India (SEBI), they must invest a  minimum of 80% of the total corpus into large-cap company stocks
 

Moreover, large-cap companies in India generally have a market cap of more than ₹20,000 Crore.
 

These are large and established companies like Britannia HDFC, HUL, etc., with high liquidity and a large capital that can withstand market volatility in the equity market. This means investors can easily buy or sell large-cap shares while enjoying stable returns.  
 

This is possible as large-cap companies consistently rank among the top 100 companies in the country. They also generate income from various channels, so there is no total burnout if one or more revenue sources fail.

Who Should Invest in Large-Cap Index Funds?

Large-cap funds are best suited for risk-averse investors as they invest in financially strong companies and can withstand slow markets. Hence, if you have a long investment horizon and want to benefit from equity investments, large-cap mutual funds are for you.

However, one problem that might arise with large-cap funds is that they can be outperformed by mid and small-cap funds since these funds have more growth potential.

Higher return rates come with higher risk, and large-cap mutual funds returns may fail to meet market return expectations when compared to small and mid-cap funds. Hence, they may not be the best fit for short-term investors.
 

Before you start investing, consider your investment goals and risk tolerance level apart from your long-term investment horizon.

5 Best Mutual Funds in Large Cap Category

Large-Cap Fund Name

3-Year Return

(%)

5-Year Return

(%)

10-Year Return

(%)

Nippon India Large Cap Fund - Direct Plan-Growth

31.65%

15.51%

18.32%

HDFC Top 100 Fund - Direct Plan-Growth

28.25%

13.92%

16.09%

Edelweiss Large Cap Fund - Direct Plan-Growth

23.43%

14.66%

15.89%

Aditya Birla Sun Life Frontline Equity Fund - Direct Plan-Growth

24.00%

13.48%

15.80%

ICICI Prudential Bluechip Fund - Direct Plan-Growth

25.66%

14.36%

16.17%


Disclaimer:
 These return rates were taken from Money Control on 26/09/2023 at 5:30 p.m. Please note fund return rates are subject to change in accordance with market volatility and prevailing tax laws. Always check official sources and current market rates before making any investments.

What to Know Before Investing In Large-Cap Equity Mutual Funds

  • Risk and Return: All equity mutual funds are affected by market conditions, but unlike small-cap and mid-cap schemes, a large-cap fund's Net Asset Value (NAV) does not fluctuate much.
    This means large-cap funds offer stability to your investment portfolio but have lower growth potential, resulting in lower market returns than mid or small-cap funds.
  • Know the Expense Ratio: This is the fee charged by the fund house to manage your investments. According to SEBI guidelines, the expense ratio can not be more than 2.50%.
    Since large-cap index funds generate comparatively lower returns, choose funds with a lower expense ratio to maximise your returns.
  • Not for Short-Term Investors: Large-cap companies can also experience underperformance during slow market periods. However, these rates balance themselves out over the long term.
    Generally, if you stay invested for more than 7 years, you can expect returns of around 10 - 12%. Therefore, large-cap equity mutual funds are recommended to investors with a long-term investment horizon.

Conclusion

Large-cap mutual funds carry low risk and offer stable returns over the long term. Hence, most investors turn to this scheme when planning for retirement. Moreover, investors who want to gain exposure to equity markets without taking on too much risk can opt for large-cap funds.

Overall, these funds can be a great addition to your investment plans when planning for long-term financial goals like retirement, leaving a financial legacy, children's education, marriage, etc.

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

View all posts by Tata AIA Life Insurance

Frequently Asked Questions (FAQs)

What are blue-chip stocks?

Blue-chip stocks are stocks issued by large, well-established and financially sound companies with an excellent reputation. They are also another name used to refer to large-cap stocks.

How are large-cap mutual funds taxed*?

The profit you gain from selling your large-cap funds is taxed as long or short-term capital gains based on how long you have held the fund:

  • Short-Term Capital Gain (STCG): Profits gained from holding your large-cap investment for up to one year will be taxed at 15%.
  • Long-Term Capital Gain (LTCG): For large-cap funds held for more than one year, gains of up to ₹1 lakh in a financial year are tax-free. Gains above ₹1 lakh are taxed at a rate of 10%.

What are the risks of investing in a large-cap fund?

Large-cap funds are also capable of experiencing underperformance as no investment plan or option is entirely risk-free. There is always a chance of poor market performance due to external factors like geopolitical and economic influences.

Disclaimers

  • Insurance cover is available under the product.
  • The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
  • Tax:*Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.
  • 2Market-linked returns are subject to market risks and terms & conditions of the product. The assumed rate of returns or illustrated amount may not be guaranteed and depends on market fluctuations.