Stocks are categorised as per their market capitalisation or market cap. Market cap tells us about the company’s size. The three stock classifications as per market cap are large-cap, mid-cap, and small-cap. A company’s size is a determining factor that influences stock selection among investors.
Large and mid-cap funds are open-ended equity mutual funds that invest at least 35% of their total assets in both large cap and mid-cap companies. Large cap companies are those ranked 1st-100th in terms of full market capitalization and mid-cap companies are those ranked from 101st to 250th in terms of full market capitalization. Here, we will discuss in detail about large cap and mid-cap funds while also sharing fund recommendations for investors.
What are Large Cap funds?
Large cap funds are mutual funds which invest in stocks of companies with large market capitalization. Large cap companies are well-established businesses in their respective segments and have a long-standing positive track record. These companies generally follow good corporate-governance practises and therefore, wealth-generation in this case is a slow and steady process.
Why invest in large cap funds?
Large-sized companies often have a steady performance. Therefore, investors can expect regular dividend payouts. With regards to the risk-return element, large-cap funds mostly offer steady returns combined with a lower risk factor as compared to mid-cap and small-cap funds. Here are some of the noteworthy features of large cap funds:
- Large cap funds often see significant capital growth and offer stable returns to investors.
- Investment value of large cap funds is mostly unaffected by frequent market volatility. These provide a certain level of security to investors since their NAV is often stable.
- Investors looking for diversification combined with moderate to low risk can choose large cap funds.
- Investors must generally expect returns in the long term. These are not ideal for generating immediate profits.
Things to note before investing in Large Cap funds
Large Cap Funds provide steady returns with comparatively lower risk. To fetch good returns from these, investors must look at a five to seven-year horizon. Here are some of the factors to be considered before investing in these funds:
- Large Cap funds are not risk-proof: Large Cap equity funds come with many risks that are often market-related. However, these risks are relatively moderate when compared to small-cap or mid-cap funds.
- Expense ratio: Large Cap funds have various expenses related to fund management. This can impact the expense ratio of the fund. Hence, while selecting a fund, an investor must look for a lower expense ratio to fetch higher profits.
- Longer investment horizon: Large Cap equity funds can fetch good returns in the medium to long run. Therefore, investors should ideally remain invested in these for at least three to five years to get reasonable returns.
- Capital Gains Tax: Gains from large cap funds have the same tax treatment as any other equity asset. Long-term capital gains (LTCG) is applicable for an investment period of more than one year.
What are mid-cap funds?
Mid-cap funds are equity mutual funds which invest at least 65% of their total assets in midcap c-ompanies. As per the SEBI regulations, midcap c-ompanies are ranked from 101st to 250th in terms of full market capitalization.
Reasons to invest in mid-cap funds
Mid-cap companies generally carry the potential of achieving faster earnings growth as compared to large cap companies. These companies are mostly part of high growth sectors or tend to have a niche market segment.
Mid-cap companies also have the advantage of deriving greater benefit when there is an economic revival. However, these companies are often under-researched and may have significant differences between their intrinsic values and actual market price. Fund managers who can accurately identify such gaps can make use of such investments to generate higher returns as compared to the broader market in the medium-to-long run.
Risks of investing in mid-cap funds
Since mid-cap are emerging companies, they carry higher risk when compared to large cap companies. Mid-cap companies also tend to have lower capacity of dealing with changing business cycles. They are also prone to frequent price volatility. Hence, mid-cap funds are also relatively more volatile in the short-term. These funds may beat large cap funds in the long term.
Who should invest in mid-cap funds?
Investors with a higher risk appetite and long-term investment horizon can invest in mid-cap funds. Investors of mid-cap funds should ideally stay invested in these for at least 5-7 years or more to derive maximum benefits from an entire business cycle.
Taxation on Large & Mid Cap Mutual Funds
If you sell your Large & Mid Cap Fund units before 12 months, you are liable to pay short-term capital gains (STCG) tax of flat 15%. If you sell your Large & Mid Cap Fund units after 12 months, you are liable to pay long-term capital gains (LTCG) tax of 10% on the gains exceeding Rs. 1 lakh.
Top performing large-cap and mid-cap funds in 2023
Some of the top performing medium risk mutual funds to invest in 2023 are:
- Canara Robeco Emerging Equities
About the fund
The scheme’s objective is to generate capital appreciation from a well-diversified portfolio comprising investments in large and mid-cap stocks. The fund invests 95.83% of its portfolio in Indian stocks, out of which 40.25% is allocated to large-cap stocks, 29.53% is invested in mid-cap stocks and 5.63% is invested in small-cap stocks. This scheme is suitable for investors who are looking to invest for a time horizon of 3-4 years and want to fetch high returns.
| Inception Date | January 02, 2013 |
| Benchmark Name | NIFTY Large Midcap 250 Total Return Index |
| Fund Manager | Shridatta Bhandwaldar |
| Expense ratio | 0.63% |
| Fund type | Open-ended |
| Risk | Very high |
Historical Returns of the Fund (annualised)
| 1-Year | 2-Year | 3-Year | 5-Year | 10-Year |
| 37.72% | 30.84% | 23.90% | 22.25% | 22.96% |
2. Kotak Equity Opportunities Fund
About the fund
The fund primarily invests in a mix of large and mid-cap stocks with investment focus across various sectors depending on their performance and scope offered by companies within each of the identified sectors. It invests at least 95.11% of its portfolio in Indian stocks, out of which 48.79% is invested in large-cap stocks, 30.47% is allocated to mid-cap stocks, and 10.84% is invested in small-cap stocks. Investors looking to invest for a horizon of atleast 3-4 years can consider investing in this scheme.
| Inception Date | January 02, 2013 |
| Benchmark Name | NIFTY Large Midcap 250 Total Return Index |
| Fund Manager | Harsha Upadhyaya |
| Expense ratio | 0.62% |
| Fund type | Open-ended |
| Risk | Very high |
Historical Returns of the Fund (annualised)
| 1-Year | 2-Year | 3-Year | 5-Year | 10-Year |
| 31.26% | 23.68% | 20.87% | 18.57% | 17.05% |
3. Mirae Asset Emerging Bluechip
About the fund
The scheme’s investment objective is to generate regular income combined with capital appreciation by primarily investing in Indian equities and equity-related instruments of both large and mid-cap companies. It also aims to actively participate in other Indian equity and equity-related securities for an optimal portfolio.
| Inception Date | January 01, 2013 |
| Benchmark Name | NIFTY Large Midcap 250 Total Return Index |
| Fund Manager | Ankit JainNeelesh Surana |
| Expense ratio | 0.68% |
| Fund type | Open-ended |
| Risk | Very high |
Historical Returns of the Fund (annualised)
| 1-Year | 2-Year | 3-Year | 5-Year | Since inception |
| 39.82% | 30.53% | 25.89% | 23.65% | 24.98% |
4. SBI Large & Midcap Fund
About the fund
This mutual fund scheme aims to offer investors an opportunity of investing for long-term capital appreciation. The scheme primarily invests in diversified portfolio predominantly consisting of large cap and mid cap companies. Investors with a 3-5 year investment horizon and moderate risk appetite can consider investing in this scheme.
| Inception Date | January 01, 2013 |
| Benchmark Name | NIFTY Large Midcap 250 Total Return Index |
| Fund Manager | Saurabh Pant |
| Expense ratio | 1.23% |
| Fund type | Open-ended |
| Risk | Moderately high |
Historical Returns of the Fund (annualised)
| 1-Year | 2-Year | 3-Year | 5-Year | Since inception |
| 39.10% | 26.45% | 20.29% | 18.80% | 17.47% |
5. Principal Emerging Bluechip
About the fund
The scheme aims to attain long term capital appreciation through equity & equity related investments in large cap & midcap stocks. The scheme mainly invests in Indian stocks out of which 42% is invested in large-cap stocks, 24% is allocated to mid-cap and 11% is invested in small-cap stocks for a well-diversified portfolio.
| Inception Date | January 02, 2013 |
| Benchmark Name | NIFTY Large Midcap 250 Total Return Index |
| Fund Manager | Ravi Gopalakrishnan |
| Expense ratio | 0.92% |
| Fund type | Open-ended |
| Risk | Moderately high |
Historical Returns of the Fund (annualised)
| 1-Year | 2-Year | 3-Year | 5-Year | Since inception |
| 39.83% | 30.34% | 22.92% | 20.64% | 21.34% |
6. Quant Large and Mid Cap Fund
About the fund
The scheme aims to offer capital appreciation through an investment portfolio of large and midcap stocks. It is ideal for investors who want to invest their money for a minimum time horizon of 3-4 years and expect moderate to high returns through equity exposure.
| Inception Date | January 02, 2013 |
| Benchmark Name | NIFTY Large Midcap 250 Total Return Index |
| Fund Manager | Sanjeev SharmaAnkit Pande |
| Expense ratio | 0.56% |
| Fund type | Open-ended |
| Risk | Very High |
Historical Returns of the Fund (annualised)
| 1-Year | 2-Year | 3-Year | 5-Year | Since inception |
| 35.29% | 31.78% | 22.09% | 17.51% | 13.15% |
Conclusion
While mid cap funds offer opportunities to attain faster returns, large cap funds offer stability within a portfolio. Both these put together offer the right amount of balance that is ideal for investors seeking diversity to maintain an overall risk balance.
FAQs
- Are large cap funds safer than mid cap funds?
Large cap funds offer comparatively higher safety to investors since the companies that these invest in have a stable performance track record and are leaders in respective sectors.
- How to invest in large cap and mid cap funds?
To invest in some of the best large cap or mid-cap funds, you can download the Fisdom app on your smartphone. The app provides access to a vast variety of mutual fund options that you can choose from as per your risk-return appetite.
- Why should I invest in mutual funds?
Mutual funds come with different risk-return profiles. Investors, whether new or seasoned, can select funds of their choice as per their risk-return tolerance. These also allow exposure to numerous securities within the same umbrella as compared to individual stock investments.
- How to select mutual funds for investment?
To select the right mutual fund, an investor must look at the risk rating, historical performance, fund manager’s experience, and investment time horizon, among other factors.
- What are blue-chip funds?
Blue-chip is a term used for financially strong and well-established companies. A fund that invests primarily in blue-chip stocks is known as a blue-chip fund.
