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    Large Cap Funds – Large Cap Mutual Funds to Invest in 2023

    Large Cap Funds

    Investing in Large-cap funds can be a potentially low-risk way to have equity exposure. Keep reading to learn about finding the right large-cap mutual funds and investing smartly.

    What are Large Cap Mutual Funds?

    Large-cap funds are equity mutual funds that invest at least 80% of their total assets in equities and equity-related instruments of large-cap companies.

    But what are large-cap companies?

    As per SEBI, companies that rank in the top 100 listed companies in the Indian stock exchanges in terms of full market capitalisation are classified as large-cap companies. This list is updated every 6 months and can be found on the Association of Mutual Funds of India (AMFI) website.

    Large-cap equity funds are a popular investment option as they invest in companies with sustainable business operations and a reliable and proven business model.

    How Does a Large-Cap Fund Work?

    According to market capitalisation, there are 3 categories of listed companies in the stock exchange:; large-cap, mid-cap, and small-cap. As mentioned above, large-cap companies are the top 100 companies in a stock exchange.

    Large-cap mutual funds invest a major chunk of their fund in these large-cap companies listed on the stock exchange. While the aim of these funds may differ, they are best known for adding stability to the investor's portfolio while providing high-quality equity exposure.

    Who Should Invest in Large-Cap Funds?

    • • Conservative Equity Investors

      Equity as an asset class is known to carry high risk. But not all equity is the same. For instance, large-cap equity may be more stable than mid-cap or small-cap equity.

      In fact, out of all types of equity funds, large-cap equity funds are possibly one of the lowest-risk equity funds while carrying relatively good return potential.

      Also Read: Equity Funds 101_ Types of Equity Funds and Their Benefits for Investors

      Conservative investors looking for equity exposure can invest in large-cap funds that invest majorly into large-cap companies with proven track records and provide stability to their portfolio.


    • • Long-Term Investors

      Being equity investment, investors in large-cap funds should consider a long-term investment horizon, typically 5 years or more. Therefore, if you don’t want to change your portfolio every few weeks or months, adding large-cap mutual funds can be a good way to add stability to your portfolio through equity. However, it is recommended that you review your portfolio periodically to ensure it is in line with your goals and risk appetite.


    • • Investors New to Equity

      Most new investors are often motivated to invest in equity because of its return potential. However, there is one rule of thumb in investments. Higher the return potential, the higher the risk. And it is no secret that equity, as an asset class, also carries high risk. This high risk can deter especially new investors from investing in equity.

      Large-cap mutual funds can be a good way for newbies to enter into equities while keeping their risk level in check. Yes, these funds may not match the return potential of high-risk small-cap funds, but the lower risk makes up for the lower-return potential.


    • • Income Distribution cum Withdrawal (IDCW) Investors

      There are broadly two types of mutual fund investments- Growth plan and IDCW. While the growth plan re-invests the profits (if any) generated by the mutual fund to increase its NAV, the IDCW plan distributes the profits to the fund unitholders in the form of dividends.

      Large-cap companies are top 100 companies on the stock exchange and are known for regularly announcing dividends for their shareholders, making large-cap funds a good choice for investors who like to earn in the form of dividends.

    How to Invest in Large-Cap Funds?

    Here is the quickest and hassle-free way to purchase any type of mutual fund, including large-cap funds.

    • - Visit the official website of the fund house.

    • - Select the large-cap fund you want to purchase.

    • - Select between Growth and IDCW Plan

    • - Select between SIP and lump-sum investment

    • - Furnish your personal details

    • - Pay the investment amount to complete the purchase.

    • - You’ll receive your investment details in an email.

    7 Things to Consider Before Investing in Large-Cap Funds

    • 1. Check Investment Risk

      While large-cap funds may come with lower risk compared to small-cap funds or mid-cap funds, they do still carry associated risks as they are equity-oriented funds. Make sure you read the SID (Scheme Information Document) and look at the ‘Riskometer’ to analyse the risk it carries

    • 2. Check the Cost

      The Total Expense Ratio (TER) of an equity fund cannot be more than 2.25% . However, since large-cap funds usually have a large Asset Under Management (AUM), their TER may be much lower.

      Source: AMFI website

      Make sure you look at the TER of the fund before investing, as it can eat into your profits.

    • 3. Align Investment with Financial Goals

      As equity mutual funds are better suited for long-term financial goals, make sure you identify your goals carefully and understand the duration before investing. For instance, a large-cap fund may not be a prudent investment choice to meet short-term goals like a vacation. However, large-cap equity funds have the potential to help you meet your long-term goals.

      Moreover, make sure you diversify your portfolio to ensure it aligns with your financial goals and risk appetite.

    • 4. Know the Taxation

      You should be fully aware of the tax implications of investing in large-cap funds. There are 3 possible tax implications on your investments.

      ○ Taxation on IDCW
      If you opt for the IDCW plan, the dividends earned in a financial year are added to your income and taxed as per your income tax slab.

      ○ Capital Gains Tax
      - The Short-Term Capital Gains (STCG) Tax at 15% is applicable if you redeem your fund units within a year.
      - Long-Term Capital Gains (LTCG) Tax at the rate of 10% is applicable if you redeem the funds after holding them for over a year. However, no LTCG is charged on capital gains of up to ₹1 lakh per year.
      ○ Securities Transaction Tax

      A Securities and Transaction Tax (STT) of .001% is applicable on buying or selling of units of an equity fund, including a large-cap equity fund.

    • 5. Check Past Performance

      Make sure you check the historical performance of the fund. A look at the historical performance of the past five years or more can give you a good idea of the fund and its future return potential. Moreover, diver a little deeper to see how the funds have performed through various market cycles.

    • 6. AUM of the Fund

      A higher AUM means the fund has high liquidity, which can help, especially during economic downs. Check the fund's AUM to analyse its portfolio quality.

    • 7. Fund Manager’s Experience

      Large-cap stocks are usually traded in large volumes. Therefore, you need an experienced fund manager that can make smart investment decisions according to the fund’s stated objective.

    FAQ's

     

    Large-cap funds are equity funds that invest majorly (at least 80% of their portfolio) in equities of large-cap companies.

    Being equity funds, it is recommended that you stay invested for at least five years or more. This allows the fund to ride through short-term market volatility. However, the exact duration of your investment should depend on your financial goals and risk appetite. Moreover, you should review your portfolio regularly to ensure it aligns with your goals.

    Like every market-linked instrument, a large-cap fund can carry a certain degree of risk related to market volatility. However, large-cap mutual funds can be relatively safer than small-cap or mid-cap funds, especially during a bear phase.

    Source: AMFI website

    List of Funds in Large Cap Fund

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