Understanding Large Cap Funds

An investment decision cannot be made unless you have understood the characteristics of every type of fund available in the market. If you are keen on investing in mutual funds, you need to understand the basics of large-cap funds.

What is a large-cap fund?

Large-cap funds are those mutual funds, which invest in companies, which have a market capitalization of more than Rs 10,000 Crores and are well-established in the industry. Generally, they are the leaders in their industry.

Why should you invest?

Large-cap funds give higher returns compared to any other funds. They outperform small-cap and mid-cap funds and they are less volatile and less risky. They are suitable for stability in the portfolio near the redemption horizon.

Who should invest?

Large-cap funds are ideal for relatively risk-averse investors who seek exposure to high-quality stocks and wish to remain invested for a long term.

Is there any tax liability?

Large-cap funds invest into equity shares. Therefore, they are liable to be taxed on the capital gains generated by the sale of the shares. If the shares are sold in less than a year, a short-term capital gain tax at 15% will be charged. If they are sold after one year, long-term capital gains tax of 10% will be charged on any amount exceeding INR 1 lakh in a financial year.

Things to consider while investing

You need to keep certain things in mind before making a decision to invest. First and foremost, consider the risk associated with the investment. If you think you can withstand the risk, you may go ahead with the investment. Large-cap funds are subject to market risk. Therefore, they may underperform during a market rally and outperform during a slump.

The returns will not fluctuate more than the market. The average returns of these funds will be less volatile. As these are financially strong, they can withstand bear markets.

Consider the investment horizon when choosing a fund. For large-cap funds, a longer horizon is recommended. You will have to stay invested for a few years to realize the potential of the fund.

How should you select a large-cap fund?

In order to select the fund, it is best, to begin with, the evolution of your risk appetite. You may then shortlist the top-performing funds and choose the one that fits your needs.

Compare the expected returns on different funds and evaluate the past performance before you make a decision.

What are the characteristics of large-cap funds?

Large-cap funds endeavour to provide better capital appreciation over a long period of time and distribute the dividends earned fairly regularly.  However, these funds are not immune to any downturns and are likely to withstand a slowdown.

The fund invests in large companies. The performance of the fund represents the economic scenario and the funds move in response to the market movement.

Best large-cap funds

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

• Edelweiss Large Cap Fund Growth
• Reliance Large Cap Fund Growth
• HDFC Top 100 Fund Growth
• UTI Mastershare Unit Scheme Growth
• Canara Robeco Bluechip Equity Fund Growth

Comparing with mid and small-cap funds

Mid-cap funds invest into medium-sized companies and small-cap funds invest into small-sized companies with regard to market capitalization. Compared to them, large-cap funds are less risky and ideal for risk-averse investors.

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:

Investing in too many Schemes:

If you are just out or an avid investor, investing in too many schemes at the same time is always considered too risky. A lot of people forget that each fund scheme has a diversified portfolio and that if they invest in too many MF schemes, it will become difficult to keep track of them. The best method is to select 2 or 3 MF schemes and build that investment over a period as per your financial goals.

Start Panicking:

Many investors start panicking when the markets go down and take an impulsive decision to sell off their portfolio. Instead take a step back, read about what is happening in the market, talk to other investor friends, advisors or colleagues. Don’t take any steps until you have all the necessary information and have done enough research to form an informed decision.

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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