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Large Cap Mutual Funds

Investing in equity mutual funds is a challenging task. Choosing a scheme with the right combination of stocks, quality fund managers, and good performance can be a difficult process. When selecting an equity portfolio, the market capitalisation or size of the company is an important parameter. After all, market capitalisation determines the risks and benefits of investing in the company. Equity mutual fund schemes are also categorised based on market capitalisation – Large cap mutual funds, Mid-cap mutual funds, Small-cap mutual funds, Multi-cap mutual funds, etc. 

It is important to understand these terms before you start investing. Here, we will explore Large Cap Mutual Funds and talk about some must-know features of these schemes.

List of Large Cap Mutual Funds

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What are Large Cap Funds?

Large Cap Mutual Funds are equity funds that invest a bigger proportion of their total assets in companies with a large market capitalisation. These companies are highly reputed and have an excellent track record of generating wealth for their investors over a long period. 

Large Cap Funds are hence known to generate regular dividends and steady compounding of wealth. Also, these schemes carry a lower risk as compared to the small-cap or mid-cap schemes and are known to generate steadier returns. They are a good option for investors with a relatively lower risk appetite and a long-term investment horizon. 

According to SEBI, large cap companies fall in the top 100 of the list of companies according to market capitalisation. Hence, investing in these companies is considered to be less risky and steady. 

Features of a Large Cap Fund

Before you invest in large cap funds, here are some things that you must consider: 

  1. Risk and Return

All equity mutual funds are affected by market conditions. When the benchmark of the scheme fluctuates, the Net Asset Value (NAV) moves up or down, too. However, unlike small-cap and mid-cap schemes, the NAV of a large cap fund does not fluctuate a lot. Hence, investing in large cap schemes offers stability to your investment portfolio. Having said this, the returns from these schemes are usually lower than the mid-cap or small-cap funds. 

Remember, you can consider investing in these funds if you desire stable returns at a lower risk exposure. 

  1. Not for Short-Term Investors

When the market slumps, large cap funds also experience underperformance in their portfolios. However, since the money is invested in financially strong companies, this underperformance averages itself out over a period of time.

The general understanding is that if you stay invested for more than seven years, then you can expect returns of around 10-12%. Hence, these mutual funds are usually recommended to investors with a long-term investment horizon.

  1. Consider your Financial Goals

Large-cap mutual funds carry a reasonable amount of risk and offer stable returns. Hence, many investors turn to these schemes when they are planning their investment for retirement.

Also, investors who want to gain exposure to the equity markets without taking too many risks prefer investing in large-cap mutual funds. It is important to consider your financial goals before investing.

How Does a Large Cap Mutual Fund Work?

By now, you know that large cap funds invest in big organisations. These schemes try to offer regular dividends and capital appreciation in the long term. If you are a risk-averse investor but want to benefit from equity investments, then large cap equity funds are the best option available to you. Since these schemes invest in financially strong large cap companies, they can withstand a slowdown in the markets. However, the returns are lower compared to mid-cap or small-cap funds.

In the long term (around five to seven years), these funds tend to offer good capital appreciation. However, before you start investing, ensure that you consider your investment objectives and risk tolerance apart from the long-term investment horizon.

How Should You Invest in a Large Cap Mutual Fund?

Such Mutual Funds can be invested in by submitting a duly filled application form along with a cheque or bank draft to a branch office or designated Investor Service Centres (ISC) of large cap mutual funds or Registrar and Transfer Agents of the respective Mutual Funds.

One can also invest online by visiting the websites of the individual Mutual Funds.

Furthermore, one may invest with the assistance of Groww. It lets you invest in large cap funds without having to go through a long, tedious procedure. All you need to do is just download the Groww application, complete the KYC process, and invest in a suitable fund. 

Why Should You Invest in Large Cap Mutual Funds?

These funds carry varied sets of benefits for the investor, and some of them are:

  1. Lower Risks

The underlying companies of these funds are large capitalization companies, which are not majorly subject to market movements. They are already well-established companies that do not hold a lot of risks. Therefore, the investors of large cap funds will be investing in low-risk funds. 

  1. Higher Returns than Bank Deposits

Although these mutual funds are low risk when compared to mid or small-cap companies, they still offer more returns than your fixed or traditional investment vehicles. 

  1. Diversification

It offers a diversification opportunity for investors, which can make the entire investment portfolio perform stable in different market conditions.

Taxation Rules of Large Cap Mutual Funds

Being equity funds, large cap mutual funds are subject to capital gains tax and dividend distribution tax.

Capital Gain Taxes

On redeeming the units of a large cap equity fund, you earn capital gains – which are taxable. The rate of tax depends on the holding period – the period for which you were invested in the fund.

  • The capital gains earned by you for holding a period of up to one year = Short Term Capital Gain (STCG), which is taxed at 15%.
  • The capital gains earned by you for a holding period of more than one year = Long Term Capital Gain (LTCG). LTCG up to Rs. 1 lakh is not taxable. Any LTCG above this amount is taxed at the rate of 10% without indexation benefits.

Dividend Distribution Tax

  • When a fund house pays dividends, it needs to deduct DDT of 10% at the source before making the payment.

FAQs

Q1. What is large cap mutual fund meaning?

Large cap mutual funds belong to the category of equity mutual funds, but their underlying investments are primarily concentrated on large capitalisation companies. 

Q2. How does a large cap mutual fund work?

These funds invest a large portion of the assets in companies with a large market capitalisation. These companies have a high reputation in the market and have a proven track record of performing well. Therefore, these funds come with lower risks than mid-cap funds and small-cap funds. 

Q3. Who can invest in large cap mutual funds?

Investors who are looking forward to lower risks, assured investment returns, etc, can choose these mutual funds. 

Q4. How do you invest in large cap funds?

You can invest in these mutual funds through the owning companies' official website or through the Groww application. 

Q5. Are large cap funds risky?

Large-cap funds are comparatively less risky than mid-cap or small-cap funds

Disclaimer - Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.

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