Understanding Large & Mid Cap Funds
By Akhil Chugh
Date August 21, 2022
Large & Mid Cap Funds are essentially multi-cap funds in a new avatar. These funds invest at least 35% in large-cap companies and at least 35% in mid-cap companies. Large-cap stocks belong to the top 100 companies by market capitalisation. On the other hand, mid-cap stocks belong to companies that rank 101 to 250 by market capitalisation.
Large & Mid Cap Funds aims to proactively take advantage of potential capital appreciation opportunities arising from the large and midcap segment of the market.
Large & Mid Cap Funds category has two types – a fund with a large-cap focus and funds with a mid-cap focus. The fund that invests more in large-cap stocks is relatively less risky than funds that invest more in mid-cap stocks. Large-cap stocks belong to companies that are market leaders with a proven track record. Thus, these stocks are more or less stable than mid-cap stocks. On the other hand, mid-cap stocks are companies that have the potential to become large-cap stocks. Mid-cap stocks are slightly more volatile than large-cap stocks but have the potential to generate higher returns in the long run.
Therefore, while investing in Large & Mid Cap Funds, it is critical for investors to analyse the portfolio holdings to pick a suitable Large & Mid Cap Fund depending on his/her risk tolerance levels. Get in touch with our experts at Net Brokers to help you pick the right
Large & Mid Cap Fund for you in line with your risk tolerance and investment objective.
Benefits of Investing in Large & Mid Cap Fundsext Here
1. Higher Returns with Balanced Risk:
Large & Mid Cap Fund are pure equity schemes that have the capacity to generate significant returns in the long term. Since the fund invests in both large-cap stocks and mid cap stocks, the scheme has the potential to generate returns higher than a pure large-cap fund. Furthermore, the stability of large-caps stocks and good growth potential from mid-caps will help in building wealth over the long term.
2. Portfolio Diversification:
The fund portfolio is well-diversified as Large & Mid Cap Funds invest across the top 250 companies by market capitalisation. A well-diversified portfolio has the potential to perform well across different market scenarios. Thus, the returns can be significant over the long run.
3. Expert Fund Management:
The fund management team dynamically rebalances the assets in the portfolio to take advantage of the market movements while adhering to the fund’s investment objective. Thus, the fund manager’s experience and expertise will significantly impact the fund’s performance.
4. Long-Term Investment:
Large & Mid Cap Funds are pure equity schemes. Equity funds are highly volatile in the short term. In other words, the fund’s returns fluctuate with market movements. Thus, to generate significant returns, you must have a long-term investment horizon. Over the long term, the effect of market volatility averages out. Therefore, these funds are suitable for your long-term investment goals such as retirement, child’s education, buying a house, etc.
Who Should Invest in Large & Mid Cap Funds?
- If the safety of large-cap funds along with the high returns of mid-cap funds appeals to you, you could consider Large & Mid Cap Funds rather than investing in two different funds of separate market capitalisations.
- Since these funds invest in mid-cap stocks, it is necessary that investors stay patient and wait for the fund to perform in the long term. Hence, it is suggested that you invest in these funds only if you have a longer investment horizon of a minimum of 5 years.
- With investments in mid-cap stocks, the fund brings along a moderate level of risk. Therefore, investors with an above-average risk appetite may only consider investing in these funds.
Key Takeaways for Investors:
- Large & Mid Cap Funds provide investors a better risk-return trade off – protecting from downside while delivering upside. These funds are suitable for investors with an investment horizon of at least 5 years.
- These schemes offer a diversified approach to investing in the equity markets and endeavour to make the best of every investment opportunity.
- Like other Equity funds, this category too is taxed at the rate of 10% for Long Term Capital Gains (LTCG) made on the sale of units priced at over Rs 1 Lakh, and 15% for Short Term Capital Gains (STCG) if the units are sold within the time period of 1 year from the date of allotment.
- Investing in Large & Mid Cap Funds can save investors time and effort in switching exposure across Large Cap Funds & Mid Cap Fund categories during changing market scenarios. An investor can enjoy the expertise of a fund manager of Large & Mid Cap Fund who can make investment decisions based on market conditions while ensuring maximum returns for investors.
- Decision on investing in a Large & Mid Cap Fund should be based on the investor’s risk profile, financial goals and investment horizon.
Net Brokers believe that Large & Mid Cap funds can help you meet your long-term goals with the stability of large caps, along with the agility of mid-caps while creating wealth over the course of your investment duration.
For more information, get in touch with us today!
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