Why Invest in Large & Mid Cap Funds?
By Akhil Chugh
Date November 19, 2023
Large & Mid Cap Funds can be seen as a versatile category within the realm of multi-cap funds. With a unique approach, these funds allocate a minimum of 35% to both large-cap and mid-cap companies. Large-cap stocks, constituting the top 100 companies by market capitalization, and mid-cap stocks, ranking from 101 to 250, form the dual focus of these funds.
The primary objective of Large & Mid Cap Funds is to strategically tap into the growth potential inherent in both large and midcap segments of the market. By maintaining a balanced allocation, these funds aim to capitalize on opportunities for capital appreciation across the spectrum of companies, offering investors a diversified and proactive investment strategy.
The Large & Mid Cap Funds category encompasses two distinct types: those with a predominant focus on large-cap stocks and others emphasizing mid-cap stocks. The fund emphasizing large-cap stocks tends to carry a relatively lower level of risk compared to those leaning more towards mid-cap stocks. Large-cap stocks, affiliated with market-leading companies boasting a proven track record, exhibit a greater degree of stability in comparison to their mid-cap counterparts.
Conversely, mid-cap stocks represent companies with the potential for future growth into large-cap status. Although mid-cap stocks tend to be somewhat more volatile than their large-cap counterparts, they also harbor the potential for higher returns over the long term.
Given these nuances, investors venturing into Large & Mid Cap Funds must meticulously scrutinize the portfolio holdings. This scrutiny is crucial for selecting a suitable fund aligned with individual risk tolerance levels. For personalized guidance in choosing the right Large & Mid Cap Fund tailored to your risk tolerance and investment objectives, our experts at Net Brokers are ready to assist you.
Let’s understand why investors should consider investing in Large & Mid Cap Funds to achieve their financial goals.
Why Invest in Large & Mid Cap Funds
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 capitalizations.
- 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.
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