What are large-cap funds? | Types of Equity Mutual Fund

In this Investor Education series, we will learn about the different types of Equity MFs.

There are six categories of Equity Mutual funds, today we will discuss the first one - Largecap MF.

The stock market has three types of stocks- large-cap stocks, midcap stocks & smallcap stocks.

Largecap MF invests 80% of its investment corpus in large-cap stocks. They can invest the rest 20% in other equity and equity-related instruments and debt or money market instruments.

Largecap stocks are the top 100 companies in the stock market in terms of market capitalization. These companies are mostly market leaders in their respective sectors. They are more stable than midcap & smallcap stocks and have a long-term track record. Therefore they provide stable returns and are relatively safer.

If you are a new investor who has just started investing, you should start with large-cap mutual funds. Because these funds invest in the top 100 companies of the stock market, they reflect a broader market trend and are relatively safer investments.

Largecap funds essentially act as a core allocation in an investor’s portfolio. So every investor must have a large-cap fund in their MF portfolio.

When and how long to invest in large-cap funds?

If you want to start SIP, anytime is a good time to start. But if you are planning a lumpsum investment, we suggest you wait for market corrections. For example, in the given scenario where Nifty50 is down over 15% from its all-time high, it can be a good time to invest. Never make a lumpsum investment when markets are reaching a fresh high.

How long to stay invested?
Consider at least a 3-5 years investment horizon.

How to choose the best large-cap funds?
Look at these things before choosing a large-cap fund
1. Rolling returns
2. Fund Management style
3. Track record of the fund manager
4. Expense ratio

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