If you have ever opened your Moneyfy App and browsed through the list of mutual funds, you must have come across different options like small, mid, and large cap funds. These refer to the market capitalization of companies. As the names suggest, the small-cap companies have the smallest share or rank in the market. Next are the mid-cap companies with the next highest ranking. And lastly, the large-cap companies with the highest ranking.
This article is about the last option on this list – large cap mutual funds and how they can bring stability to your portfolio.
What are large cap funds?
As per the Securities and Exchange Board of India (SEBI), the top 100 companies in market capitalization are known as large-cap companies. These companies have been well-established, because of which the chances of them suffering from a massive loss or going bankrupt are minimal. As a result, when you invest in large-cap mutual funds, you get exposed to low risk. In fact, large-cap funds are the least risky out of small, mid, and large cap funds. This makes them ideal for risk-averse investors.
How do large cap mutual funds provide stability to your portfolio?
Here are some reasons why large cap funds are known for their stability:
- Large-cap companies are some of the oldest companies in the market. These are the top players with a good track record of paying dividends.
- Their management style and business model are stable and not as susceptible to market fluctuations as mid and small-cap companies.
- Typically, these companies are the leaders in their respective fields. Hence, they can survive economic turbulences and steer through market lulls.
- Large cap funds are highly liquid.
- The net asset value (NAV) of large cap funds is generally stable and unchanging.
Who should invest in large cap mutual funds?
Large cap mutual funds may be ideal for the following investors and goals:
- Risk-averse investors who want to invest in low-risk options can consider a systematic investment plan (SIP) in large cap mutual funds. These offer the least amount of risk out of large, mid, and small cap funds with decent returns.
- Investors seeking stable returns without too many fluctuations can invest in large cap mutual funds. The returns from large cap funds are not as erratic and volatile as others and can offer unwavering growth on your invested capital during market lows and highs.
- Large cap equity funds may require a longer investment horizon. Although large cap funds provide stability, equity can add high risk to your portfolio. As a result, they can be ideal for long-term goals like retirement, a child’s education or marriage, etc.
To sum it up
It is important to remember that large cap mutual funds can offer low risk and add stability to your portfolio. However, their returns may be relatively low too. Having said that, they still make for a good choice for risk-averse investors. If you wish to invest in them, you can browse through the Tata Capital Moneyfy App and start investing!
