Mutual funds are categorized based on the market capitalization of the companies they invest in; small-cap, mid-cap, and large-cap funds are the three different types. Among these three types, large-cap mutual funds are often the most preferred choice of investment for both institutional investors and retail investors. If you’re wondering what large-cap mutual funds are, then here’s everything you need to know about them.
Now, companies listed on the stock exchanges are ranked according to their market capitalization. Market capitalization is a figure that’s arrived at by multiplying the total number of shares outstanding by the current market price of the shares.
Entities ranking in the top 100 in terms of market capitalization are termed large-cap companies. Such companies are usually very large, with mature businesses and stable financials. Mutual funds that invest in such large-cap companies are referred to as large-cap mutual funds.
Now that you know what large-cap mutual funds in India are, let’s take a look at the various benefits you can enjoy by investing in one.
A significant advantage you can enjoy with large-cap funds is the high level of liquidity. Since there’s always a high demand for the stocks of large-cap companies, buying and selling the units of large-cap funds is easy and quick.
Thanks to the high level of financial stability and business maturity of large-cap companies, the returns that you get tend to be very stable across the years. In addition to capital appreciation, you also earn dividends regularly.
Unlike small-cap or mid-cap companies, large-cap entities are immune to the effects of market downturns to a certain extent. And even if they’re impacted by headwinds, they’re most likely to recover quite quickly. But, again, this is primarily due to the stable nature of these companies.
While there are plenty of advantages to investing in large-cap funds, there are a couple of disadvantages as well. As an investor, you need to be aware of what they are.
As you’ve already seen before, large-cap companies generally have fully matured businesses. Due to this, their future growth potential is almost always very low. As a result, the returns that they offer through capital appreciation tend to be quite low as well.
Since the capital appreciation of large-cap funds is generally low compared to mid-cap or small-cap mutual funds, they’re far from the best short-term investment options. Moreover, with large-cap funds, you would have to stay invested for extended periods to enjoy any kind of significant returns.
Now that you’ve gotten a good understanding of what large-cap mutual funds are, you can go ahead and start investing in one. That said, make sure to first open a Demat account and a trading account with Motilal Oswal before that. Without a Demat account, you cannot invest in mutual funds, upcoming IPOs, or any other market-linked investment option.
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