What is Large Cap Fund and its features

If you have realized that just saving a certain portion of your monthly income is not going to be enough and that you need to also start investing, you are going in the right direction. Financial planning is essential for anyone who wants to invest to financially secure their future. One key aspect about financial planning is having a defined set of long-term and short-term financial goals. When you set goals, you are able to identify what schemes you may invest in order to potentially get closer to those goals.

The investment market has a plethora of financial products to choose from and has a scheme to cater to the needs of almost every individual who is out there looking for investment opportunities. What is your financial goal? Is it building a retirement corpus that might require a commitment of at least 10 to 15 years or is it a short to medium term goal like making the down payment of the luxury car you always wanted? Once you know what your goal is, the next thing to do is identify your risk appetite. If you are someone with zero risk appetite, then traditional investment tools might be suitable for you. But if you are someone who doesn’t mind taking some risk with the hope of fetching some better capital gains you may consider the option of investing in mutual funds.

What are mutual funds and what is a large cap fund?

Of the several investment tools available, mutual funds have gained momentum here in India over the past few years. In case you aren’t aware, mutual funds are professionally managed funds where the fund manager applies an investment strategy to buys/sells securities in accordance with the scheme’s investment objective. Asset management companies (AMCs) collect money from investors sharing a common investment objective and invest the capital raised across the Indian economy in stocks and other money market instruments like G-sec, commercial paper, corporate bonds, call money, etc. Mutual fund investors receive shares in the form of units in proportion to the investment amount and also depending on the fund’s existing net asset value (NAV). There is a possibility that the performance of a mutual may depend on the performance of its underlying assets and the sectors in which it invests.

Large cap funds are those equity mutual funds that invest predominantly in equity and equity related instruments of companies having a large market capitalization. Since these funds allot a large portion of their assets to equity, large cap funds are considered to carry a moderately high risk profile.

As per SEBI* - In order to ensure uniformity in respect of the investment universe for equity schemes, it has been decided to define large cap, mid cap and small caps follows:

a. Large Cap:1st-100thcompany in terms of full market capitalization

b Mid Cap:101st-250thcompany in terms of full market capitalization

c. Small Cap:251stcompany onwards in terms of full market capitalization

Mutual Funds would be required to adopt the list of stocks prepared by AMFI in this regard and AMFI would adhere to the following points while preparing the list:

a. If a stock is listed on more than one recognized stock exchange, an average of full market capitalization of the stock on all such stock exchanges, will be computed;

b. In case a stock is listed on only one of the recognized stock exchanges, the full market capitalization of that stock on such an exchange will be considered.

c. This list would be uploaded on the AMFI website and the same would be updated every six months based on the data as on the end of June and December of each year. The data shall be available on the AMFI website within 5 calendar days from the end of the 6 months period.

What are some of the features of a large cap fund?

Investing in large cap funds has its share of perks which investors might benefit from. Here are some of the features of a large cap fund:

1. Large cap funds invest in companies with a proven track record

A large cap usually invests a large proportion of its corpus in well-established companies that have gained its reputation over the years. Such companies are traded frequently and hence liquid and also less volatile as these stocks have proven track record, business models and are capable enough to deliver long term consistent capital appreciation.

2. Large cap funds may be considered for long term investment

Large cap funds may suit investors who have long term investment horizon of at least ten years and seek long term capital appreciation. That’s because large cap funds are equity oriented funds and usually, investments made in the equity market tend to give desired outcomes only when you remain invested in them for the long run. Hence, large cap funds may be considered for meeting long term financial goals like retirement planning or buying a weekend home.

3. Large cap funds are supposed to carry a diversified portfolio

Usually, a large cap fund’s portfolio majorly consists of equity and equity related instruments of large cap companies. Having a diversified portfolio might benefit investors as the risk profile of the fund is balanced. For example, if one sector in which the large cap fund has invested crashes, there are minimal chances of other sectors where the fund has invested, crashing at the same time.

The investment objective of a large cap fund is to provide investors with long term capital gains. However, investors should bear in mind that large cap funds or any mutual funds are generally exposed to volatile market conditions and hence, capital gains from these investments are never guaranteed. Hence, investors are expected to consider investing large cap funds only if their risk profile allows them to do so. If you are someone who is completely new to mutual funds or lack basic investing knowledge it is better that you seek the help of a financial advisor. Investing is a long journey and make sure that you are committed your investments till your financial goal is achieved.

Source - https://www.sebi.gov.in/legal/circulars/oct-2017/categorization-and-rationalization-of-mutual-fund-schemes_36199.html

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