1. What are Large Cap Mutual Funds?
Large Cap Funds are those which invest a larger fraction of their investment in companies that have a large market capitalization. These are known for their stability and sustainable returns over a period of time. The companies of Large Cap funds are mostly leaders in their field of business and hence tend to remain stabler than smaller or mid-cap companies during volatile market conditions. The Large Cap companies tend to have a good number of experience in the market and carry a strong performance record backed by robust corporate-governance practices.
2. Who should invest in Large Caps Mutual Funds?
Investments are always subject to each individuals investment goals, their risk profile and their investment horizon. Large Cap funds are ideal for investors who want to make profits without the exposure to the added risk of being subject to volatile markets. Moderate risk profile investors can avoid small-cap risky schemes and opt for Large Cap Mutual Funds that are comparatively less exposed to risk.
Large Cap Mutual Funds are a good option for a novice or a first-time investor. Such companies have a history of many years of consistent performance during the highs and lows of the market. Investors must understand that these funds may not post very high returns even at the hour of favorable market conditions but the keep in mind that the returns from such funds will be less volatile.
For any investment related queries on Large Cap Mutual Funds, visit ClearTax.
3. Things an investor should consider when Investing in Large Cap funds
Large Cap Mutual Funds are not subject to as much risk as their small and mid-cap counterparts. But as an investor, you must still weigh in those elements that may impact the performance of your funds and its ultimate return. Your age, your level of tolerating risk, the prime motive of your investment and your investment time period, etc. make obvious factors for consideration.
Enlisted are few other things that you must take into account before investing in these funds.
a. Know about the Exit Load
This is a cost that as an investor you incur directly. Even though the role of exit load comes to the fore when you decide to sell your units it is nevertheless worth noting. Exit load forms a fraction of the NAV that you receive. So, the lower the exit load your fund allows for the better for you.
b. The Experience of the Fund Manager
Fund managers, particularly in the case of Large Cap Mutual Funds, play a decisive role in the generation of returns. Fund managers with experience and expertise will be able to better position to move the capital in the right direction when the market looks promising.
c. The Expense Ratio
Expense ratio will impact you directly and includes costs like the brokerage fees, the cost charged Mutual Fund houses, etc. Some fund houses may charge a high fee but also offer higher returns.Determine the high cost of fee and charges and, the NAV and returns.
d. The past performance of the Large Cap fund
With Large Cap funds, the past performance is crucial. As an investor, you must consider the performance of the fund both in the bullish and as well as the bearish market cycle. Pick funds that have been consistent in their numbers in all market conditions and cycles.
e. Know your investment objective
Depending on your investment profile, check whether the objectives of the fund are in accordance with your goals. Understand the style of fund management to know of the performance of the funds.
4. How to evaluate your Large Cap Mutual Fund?
As an investor, you must look at certain financial ratios to evaluate your funds. Some of the important ratios to be considered are as follows:
a. Sharpe Ratio
Sharpe ratio measures the adjusted risk-return of a portfolio. If your financial portfolio has a higher Sharpe ratio it means that it is seen as a portfolio that is relatively superior portfolio compared to its peers.
Sharpe ratio = (Mean portfolio return − Risk-free rate)/Standard deviation of portfolio return
b. Standard Deviation
The dispersion of a set of data from its mean or average is measured through Standard deviation. In finance, standard deviation indicates the volatility of an investment through its annual rate of return. A stock that has a higher standard deviation will have a larger price range which again is indicative of higher volatility in comparison to stocks with a low standard deviation.
Beta highlights a funds responsiveness to the correlated movements of a benchmark. If a benchmark registers a Beta of 1.0 it simply means that its volatility is exactly equal to the benchmark. If a fund has a Beta of 0.90 or less, it means that it is 10 percent less volatile and if it the Beta is 1.40, then it means that the fund is 40 percent more responsive than the benchmark.
The percentage of fund returns that fall in line with the benchmark returns is reflected by R-Square. The value of R-Square rests between 0 and 1 and is denoted as percentages from 0 to 100 percent. A fund with an R-Square of 100 percent will have its securities’ movements explained by the movements in the index. A higher value of R-squared means a more useful beta figure.
An asset manager’s ability to make a profit when the benchmark also registering a profit is measured by an Alpha. Alpha can be equal to 1.0 or even less or more than 1.0. The higher the Alpha, more is the ability of the manager to reap profits from the benchmark movements.
5. Advantages and Disadvantages of Large Cap funds
a. Advantages of Large Cap Mutual Funds
One of the biggest advantages of having Large Cap stocks in your portfolio is the stability they bring. These companies with a solid track record offer steady payment of dividends as well. This compensates for the fact that Large Cap funds do not have the potential for very high returns. Because of their presence in the market for many years, investors can access their profitability and financial details for a course of time to assess their performance before making any decisions. This financial research data, when viewed alongside the history of the company and its present business activities, can help in the accurate determination of the valuation
Investing in Mutual Funds can, however, be risky and it is recommended to consult an expert. You may speak to our investment experts at ClearTax for guidance.
b. Disadvantages of Large Cap Mutual Funds
These funds have been characterized as an ideal investment option for new investors or those that do not wish to take risks. One downside of this fund is that it does not offer the platform for generating income in the short run. The returns generated also happen to be lower than those that one gets from the small cap or mid-cap funds. In the case of Large Cap funds, it is the fund manager that takes the decisions pertaining to the stocks in your portfolio which leaves you with little or no control on the portfolio.
6. Top 10 Large Cap Mutual Funds
Based on Large Cap fund performance indicator values, listed below are some of the top equity funds. The rankings done here are for a consolidated list of Large Cap equity funds on a 1,3 and 5-year return basis.
|1 year||3 year||5 year|
|ICICI Prudential Value Discovery Fund||15.19||20.55||28.89|
|Kotak Select Focus Fund-Regular Plan||11.98||13.28||21.59|
|Mirae Asset India Equity Fund-Regular Plan||16.03||13.21||21.24|
|Invesco India Growth Fund||24.39||12.97||20.12|
|Franklin India Flexi Cap Fund||13.63||9.07||19.36|
|JM Multi Strategy Fund||10.57||12.22||19.14|
|SBI Bluechip Fund||14.79||11.17||18.88|
|JM Core 11 Fund||13.38||13.33||18.48|
|Reliance Top 200 Fund-Retail Plan||15.51||10.34||18.27|
|Edelweiss Large & Mid Cap Fund-Regular Plan||22.31||11.51||18.16|
Note: This is a representative list based on key metrics, dated April 23, 2018. It does not serve as a recommendation of funds nor does it claim to be the only correct way to rank funds.
Large-cap funds play an important role in bringing stability and long-term steady returns to your investment portfolio. Fit for those willing to take a moderate risk and seek balanced returns. It is, however, crucial to research well before you make any investments.
Mutual Funds are subject to market risk and require informed decision making. Reach out to our team of financial experts at ClearTax to gain further guidance on investing.