Are You Ready to Invest in Large-Cap Funds?

Having witnessed the roller-coaster ride of the stock markets post-2020, are you finally ready to step inside the trading ring? And as direct equity investing demands a lot of expertise and time, you want to start with mutual funds. But with so many options available, especially in the Large-Cap category, how should one begin? Well, we have that sorted out for you.

Defining Large-Cap Funds
You must be familiar with Reliance, TCS, Infosys and other well-known corporations. These are the names that belong under the large-cap category and have big market capitalisation. Large-cap mutual funds typically invest in these well-known players with a track record of success and a solid reputation in the market. Long-term dividend payments are expected from large-cap funds. As a result, regular compounding of your money should therefore be substantially secured. Due to the scale of the large-cap companies and the extended investment horizon, these funds also offer a lower risk profile than Small-Cap or Mid-Cap funds.

Target Investors for Large-Cap Funds
Investors who use their equity assets prudently and who choose stability over returns that are very volatile or fluctuate frequently should use large-cap funds. Investors must keep in mind, though, that even the finest large-cap funds occasionally fall short of the anticipated market return when compared to medium-cap or small-cap companies. Market capitalisation is not a problem for large-cap funds. These funds might also think about reorienting their investments to take up a sizable portion of their investment portfolio in order to provide their investment profile with the much-desired continuity that investors seek.

Investments in large-cap funds are appropriate for people looking to diversify their portfolios with well-known market players. If one area falls short of your expectations, the other will immediately make up for it. In comparison to small and mediumsized businesses, these funds generate lower revenues since they are less risky and volatile. It is a fantastic investment avenue for new investors who are only now becoming familiar with the market. When investing in large-cap funds, the following aspects must be kept in mind:

■ Expense Ratio — Large-cap funds, like all mutual funds, have an expense ratio for effective fund management. Your larger take-home pay will therefore benefit from a lower expense ratio.
■ Risk and Reward — All equity mutual funds are affected by the market’s position. Your assets vary along with the market. However, a large-cap scheme’s NAV is more consistent than small-cap and mid-cap schemes. This indicates that stability is a benefit of investing in large-cap funds, but the returns are often lower than those of small-cap and mid-cap funds. As a result, if you want steadier returns with less risk, large-cap funds can be a better choice for you.
■ Investment Period — For those looking to invest for the medium to long term, large-cap funds are excellent. To evaluate the prospective return of the offer, investors in these funds must have held their positions for at least three to five years.
■ Realisation of Investment Objectives — Make sure the objectives of your fund align with your personal objectives. To learn more about fund performance, you should be aware of the fund manager’s background and management philosophy.
■ Examine Past Performance — Analysing a large-cap fund’s historical performance is crucial before investing. Choose a fund whose numbers have remained steady through all the market cycles and situations.
■ Knowledge of Fund Management — To maximise return yield, experienced fund managers are essential. Your fund manager can advise you to move money from one place to another when the market seems promising or even raise your investments at a specific moment in a specific industry. Fund managers have specialised knowledge in the area. They can help you invest more in safe investments that produce higher returns by using their knowledge, experience and skill in the business.
■ Identify the Exit Load — This is the direct expense borne by investors. The most important factor in saving is exit load, which is a component of NAV. Higher returns are obtained with low exit loads.

Let’s analyse the top three performers:

1. Canara Robeco Blue Chip Equity Fund — One of the best schemes in the large-cap category, the Canara Robeco Blue-Chip Equity Fund has given 18 per cent returns in the past three years and almost the same returns on a five-year basis. The fund belongs to the equity category of Canara Robeco Mutual Funds. To invest in Canara Robeco Blue-Chip Equity Fund via lump sum you require ₹5,000 and via SIP it is ₹1,000.

2. Nippon India Large Cap Fund — One of the most stable schemes of the past few years, Nippon India Large-Cap Fund has given 17-18 per cent returns in the past three years and has managed the same in the last five years. The scheme belongs to the equity category of Nippon India Mutual Funds. As an investor, the minimum amount you require to invest in Nippon India Large-Cap Fund via lump sum is ₹100 and it’s the same via SIP.

3. ICICI Prudential Blue Chip Fund — With a good amalgamation of companies to spread your investments, the fund has given 17 per cent returns in the past three years and went a notch higher in five years. The fund belongs to the equity category of ICICI Prudential Mutual Funds. You can start your investment journey with a minimum lump sum amount of ₹100 and via SIP of ₹100.

Conclusion
In a nutshell, large-cap funds have been depicted as an ideal investment option for new participants or for those who take less risk. But one major disadvantage of such funds is that the growth potential of invested stocks might be limited. Plus, the returns yielded also happen to be lesser than those that one gets from small-cap and mid-cap funds. Triumph in large-cap funds relies on the scope of your investment and the period. If you aim to have stable returns out of equity investments, you should invest in large-cap mutual funds.

These funds are a good choice for investors who want compatible returns that do not change too much over time. Although the funds are not unsusceptible to market downturns, they fare better than the other two categories. In addition, large-cap funds can help you diversify your portfolio. But, to make out of these funds, you will need to analyse your short-term financial goals as well as your long-term needs. So, to enter the investment ring, always check the expense ratio and the funds’ past performance and only then bet on the large-cap funds.