Understanding Large and Mid-Cap Fund

With an increasing number of mutual fund options, it could become difficult to choose one unless you have a thorough understanding of the same. In order to make the right investment decision, you need to understand the types of funds available in the market.

What are large Cap and mid-cap in a mutual fund?

Large-cap funds are those mutual funds, which invest into the stocks of companies that have a market capitalization exceeding INR 10,000 crore. These companies are industry leaders and are well established in the market.

Mid-cap funds are mutual funds that invest in mid-size companies that are smaller in terms of market capitalization as compared to large-cap funds. They are also riskier as compared to large-cap funds.

Why should you invest?

Large and mid-cap funds offer lower risks as compared to small-cap funds. Since the companies are well established in the market, the risk associated with the investment is significantly low in case of large-cap funds and moderate to high in case of mid-cap funds.

Who should invest?

Investors, who are risk-averse, can invest into large-cap funds as these funds comparatively lower but assured returns. On the other hand, investors who can take the risk can invest in mid-cap funds, as these funds are more exposed to market fluctuations.

Investors who wish to remain invested for a long period should consider investing in these funds.

Is there any tax liability?

The funds invest into the stocks of different companies. They are equity schemes and will be taxed for long-term capital gains. The short-term capital gain on the sale of shares is taxed at 15% and the long-term capital gain is taxed at 10%, on any amount exceeding INR 1 lakh, in a financial year.

Things to consider while investing

Before investing into large and mid-cap funds, you need to consider the stability of the fund and its past performance. You will also have to estimate your risk appetite before putting in your money.

Consider the past performance and weigh it against the risk associated with the investment. Choose a fund that is stable and has been performing well for the past couple of years.

How should you select a large-cap fund?

There are many things, which you need to keep in mind before selecting a large-cap fund. Primarily, consider the expected returns of the fund. Do not choose a fund because it has performed well in the past one year look at the overall performance of the fund over the last five to ten years.

Also, consider the industries in which the fund invests. You should pick a fund that offers stability and has low risk associated as compared to others.

What are the best large-cap and mid-cap funds?

We have listed down few of the best large-cap and mid-cap funds that you can think about investing. For more details, set-up your account and talk to our financial advisor today:

• Edelweiss Large & Mid Cap Fund Growth
• Mirae Asset Emerging Bluechip Fund Growth
• Canara Robeco Emerging Equities Fund Growth
• SBI Large & Midcap Fund Growth
• ICICI Prudential Large and Midcap Fund Growth

What are the characteristics of large and mid-cap funds?

Large-cap funds are highly secure; they carry low risk and have the potential to generate stable returns. Mid-cap funds are slightly high in risk and the returns might vary in time of market volatility.

Large and mid-cap funds, therefore, have different characteristics. Choose the fund keeping your risk appetite and financial goals in mind.

Common mutual funds investment mistakes

To ensure the investments you make help you toward a financially secure future, you must avoid certain investment mistakes that a lot of newcomers end up making. Mistakes such as:

No Proper Research:

A lot of investors start investing without properly understanding the product or schemes. They do too little or no research of their own or sometimes just listen to the investment pundits and carry out the investments. Once you have your financial goal, the next step is to start identifying an investing plan or scheme that will help you achieve that goal. If you are new to the world of Mutual funds, take advice from professionals, acquire knowledge and start slowly.

Investing in Lump Sum Money:

Investing a huge chunk of your money in one go might seem like a good idea for some investors but it is not a good method. Your ability to manage market risks and to carry out asset allocation is deeply reduced if you make a lump sum investments. Having a systematic investment plan helps you invest your money periodically and optimise your returns based on the financial goals you want to achieve.

To read the entire list of common mistakes that you should avoid, check out 10 mistakes to avoid while investing in mutual funds.

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