One of the popular types of mutual funds is equity funds. As the name suggests, an equity fund allocates funds to equity instruments. However, these funds are risky and volatile because they invest in the equity market. However, sign up for this variant of mutual funds if you intend to build a retirement corpus. Also, remember that equity funds are not a monolith. One of the different variants of equity funds is a large-cap mutual fund.
What are large-cap funds?
They are equity funds that allocate their total assets to companies with a large market capitalization. These are well-reputed companies with a track record for generating wealth over a long period. Invest in a large-cap mutual fund to enjoy steady compounded wealth and regular dividends. Large-cap companies fall in the top 100 positions in the list of companies according to market capitalization according to SEBI rules. So, investing in these companies is supposedly less risky than other equity fund types, namely mid- and small-cap funds. It is possible to invest your funds through the SIP route. You could determine the investment amount by using the SIP calculator.
Why are large-cap funds popular?
People sign up for these funds because of the following reasons:
Capital growth:
Large-cap funds generally provide appreciation over the long term because they allocate your funds to companies with a track record of outstanding performance.
Fund diversification:
Large-cap funds invest in a wide range of blue-chip stocks for the long term. Fund managers regularly monitor the fund’s performance and make necessary changes to the portfolio.
Highly liquid:
Large-cap stocks may withstand fluctuating market conditions. Hence, they offer the benefit of adequate liquidity.
However, you should not sign up for a large-cap mutual fund recklessly. You should follow a few tips to take full advantage of your large-cap fund.
How do we maximize the returns on large-cap funds?
Here is how you can accumulate wealth through large-cap funds:
Determine the risk and return:
The returns on equity funds are market-linked. The net asset value (NAV) and the scheme’s benchmark fluctuate constantly. However, the NAV of a large-cap fund does not fluctuate significantly, unlike mid- and small-cap funds. Large-cap schemes offer stability to an investment portfolio. Simultaneously, large-cap funds offer lesser returns when compared to mid- or small-cap funds. You should sign up for a large-cap mutual fund if you seek stable returns with lower risks.
Identify your financial goals:
This tip applies to every investment. Determine your risk appetite and investment goal before signing up for any investment scheme. Identifying the risk appetite and financial plan helps choose the right investment tool.
Check the expense ratio:
The expense ratio is the cost asset management companies charge for managing an investment portfolio. Compare the expense ratio of large-cap funds offered by AMCs and choose the one that you find affordable.
Identify your investment horizon:
Like other equity funds, it is better to have a long-term goal while signing up for large-cap funds. That is because large-cap funds underperform whenever the market is on a bull run. However, underperformance averages out gradually because your funds are invested in large-cap businesses.
Conclusion:
A large-cap fund suits beginners seeking capital appreciation with lower risks. Large-cap stocks deliver whenever the market performs well. However, they can also survive the bear market. Thus, they are a relatively safer variant of equity funds.
