Here?s why large-cap equity funds are important for your portfolio

The core of an investment often reflects its goal. For instance, if you aim to build a corpus over a longer time frame, the core contents of your portfolio reflect this goal. If needed, this may allow you to experiment with the rest of your portfolio.

Therefore, you must be careful when selecting your core investment. Large-cap equity funds may often be considered safe bets in this regard. This is because such funds offer stability, and at the same time, they may have growth potential. Read on to know more about large-cap equity funds and why they could be valuable in your portfolio.

What are large-cap funds?
Companies are broadly divided into three types according to their market capitalization, namely large cap, mid-cap, and small-cap companies. Large-cap companies have a market capitalization of at least Rs. 20,000 crore. Companies with a market capitalization of more than Rs 5,000 crore but less than Rs. 20,000 crore are considered mid-caps. Finally, companies with a market capitalization of less than Rs. 5,000 crore are considered small-caps.

Large-cap companies have a stronghold on the market and tend to be reliable. They may be resilient and thrive despite adverse conditions such as economic downturn or other challenges. In addition, they may often have been operational over many decades and may have earned a positive reputation. Large-cap stocks tend to be a smart choice if you aim to invest in a company's shares while minimizing your risk. Compared to equities of mid-cap and small-cap companies, the volatility of these stocks is lower. Consequently, they may carry lower risk.

Funds that invest in various large-cap companies are called large-cap funds. The characteristics of these funds reflect those of their underlying assets. For instance, large-cap stocks are known for their stability, and so are large-cap funds. Because large-cap companies are cash-positive with effective business strategies, their development, revenue production, and income are often constant. Consequently, the likelihood that a large-cap business would fail owing to economic conditions is low. Accordingly, a fund whose portfolio is composed of such stocks may often be more stable because it may be immune to market swings. Furthermore, large-cap companies often pay out dividends, which would lead to gradual wealth accumulation in your large-cap fund holdings.

The advantages of investing in large-cap funds don't end there. Some more benefits are as follows.

• High liquidity
Large-cap funds have high liquidity, which is especially important during market volatility. All of your holdings may be sold off quickly and simply in the event of a market crash. Large-cap fund managers may easily acquire and sell equities in the market to maximize profits. The pricing of large-cap stocks and the NAVs of large-cap funds may be relatively immune to market swings and may protect investors from significant declines.

• Diversification in a number of different sectors
Large-cap funds often make long-term investments in various blue-chip companies, and fund managers closely monitor the profitability of their funds.

The above factors show why large-cap funds are essential for your portfolio. However, several factors warrant consideration to optimize the returns on your investments in large-cap funds, and they are as follows.

Risk and return balance

Market conditions affect all equity mutual funds. Therefore, the NAVs of funds fluctuate along with the scheme's benchmark. However, unlike those of mid- and small-cap funds, the NAVs of large-cap fund may not fluctuate significantly. Therefore, investing in large-cap schemes may provide stability to one's investment portfolio, but the returns may be lower than those generated by mid- or small-cap funds. Thus, you may choose to invest in large-cap funds if you desire stable returns with a lower risk exposure.

Expense ratio
The fee that fund houses charge to manage your investment is called the expense ratio. It indicates how quantum of a fund's overall assets that is spent on operational and other fund management tasks.

Conclusion
The above factors highlight why large-cap funds may be worth considering in your portfolio. At the same time, it may be prudent to consult a financial expert to determine your risk appetite and goals before choosing an investment option.

Note: Market caps are defined as per SEBI regulations as below: a. Large Cap: 1st -100th company in terms of full market capitalization.

Note: Views and opinions contained herein are for information purposes only and should not be construed as investment advice/ recommendation to any party or solicitation to buy, sale or hold any security or to adopt any investment strategy. It does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The recipient should exercise due caution and/ or seek professional advice before making any decision or entering into any financial obligation based on information, statement or opinion which is expressed herein.

Statutory Details: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to Rs. 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the AMC). Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time.

Past performance may or may not be sustained in future.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.