What are Large Cap Mutual Funds

What are Large Cap Mutual Funds?

Large-cap mutual funds are equity funds that invest in large-cap stocks with a market capitalization of ₹20,000 crores or more. They invest in stocks that are listed on a rank of 1 to 100 on the stock exchange in terms of their full market capitalization.

This article covers: 

Features Of Large Cap Mutual Funds

Large-cap funds invest primarily in well-established, blue-chip stocks, offering lower risk and stable returns. They provide portfolio diversification across sectors and generate both capital gains and dividend income. Managed by professional fund managers, these funds are ideal for long-term investors with a low-risk appetite seeking investment durations of five years or more. Short-term capital gains are taxed at 15%, while long-term gains are taxed at 10% if exceeding ₹1 lakh.

1. Investment Rule 

As per SEBI guidelines on categorizing and rationalizing schemes, large-cap funds must invest at least 80% of their portfolio in large-cap stocks. They are also called blue-chip funds because they invest in blue-chip stocks with a high brand name and reputation in the market.

2. Risk and Return

Large-cap funds invest mostly in blue-chip stocks from well-established companies, carrying the lower risk and providing stable returns over time. Its NAV, or net asset value, fluctuates less than the mid-cap and small-cap funds, thereby having a lower risk level.

3. Liquidity

These mutual funds provide higher liquidity because the underlying stock holdings are actively traded on the stock exchange, and the fund manager can change the portfolio. The investors actively trade these funds, so they can be bought and sold anytime without waiting.

4. Portfolio Diversification 

Large-cap funds invest in large-cap stocks across different sectors, such as financial services, technology, energy, consumer staples, automobiles, construction, etc. An investor will get an investment chance in blue-chip companies in multiple sectors just by holding a unit of a fund.

5. NAV Fluctuations

Large-cap funds invest in less fluctuating stocks and have the highest stability on the stock exchange. Therefore, the NAV of the fund also fluctuates in a very low-key manner and provides very good capital appreciation over a long period.

6. Information Availability 

The information availability of large-cap stocks is very high and is the most talked about in the market. The investor can easily assess the performance of the fund by analyzing the underlying stock’s performance and the financial statements. This will lead to better decision-making and an easy selection from various large-cap funds.

7. Professional Management 

Large-cap funds are managed by a professional fund manager who monitors the performance of the underlying stocks and the sector. They can change the portfolio holdings from time to time and add or remove stocks as needed for the benefit of the fund.

A fund manager manages Expense Ratio As this type of mutual fund, the investor has to pay a higher cost of investing to the AMC. The expense ratio is expressed as a percentage of AUM (assets under management). The lower the expense ratio, the higher will be the profits that an investor can earn on an invested amount.

8. Investment Duration 

The ideal investment duration for large-cap funds is more than five years or at least seven years. This will help earn an average return of 10% to 15% that can beat the benchmark index performance and provide returns in line with the inflation rate.

9. Dividend Income 

Large-cap funds can provide not just the opportunity to earn from the capital gains but also from the dividend income that is declared by the underlying stock holdings. Therefore, the investor has a double benefit from capital gains and dividend earnings to build a good corpus.

10. Redemption 

If the investor redeems or switches his units by more than 10% within 12 months of purchasing, then the exit load of 1% is applicable as per the current NAV. No exit fee will be charged if it is redeemed or switched after 12 months of purchase. The rules may vary from AMC to AMC, but this is the most common rule.

11. Good in Falling Market 

This type of mutual fund is best when the market is falling or a recession is expected to come in the near future because the portfolio holdings are such that they do not hamper its performance when remaining invested for a long period of time. Also, the large-cap fund can recover quickly in times of economic downfall compared to any other type of equity fund.

12. Ideal Investment Tool 

It is an ideal investment tool for investors looking to invest for more than five years who have a low-risk appetite and want stable returns. Investors who don’t have a large sum of money to invest in blue-chip stocks can also benefit from investing in large-cap funds with a SIP amount of just ₹100.

13. Taxation 

Short-term capital gains (STCG) are taxed at a rate of 15% if the units are sold within one year of purchase. The long-term capital gains (LTCG) are taxed at a rate of 10% if the units are sold after one year of purchase, and the gain is more than ₹1 lakh. The dividend income is taxed according to the investor’s tax slabs in which they fall if it is more than ₹5,000 in a financial year.

Index Funds Vs Large-Cap Funds

The main difference between index funds and large-cap funds is that index funds invest in stocks of a particular index, whereas large-cap funds can invest in diversified large-cap stocks. 

Points of DifferenceIndex FundsLarge-cap Funds 
DefinitionAn index fund is a type of mutual fund that has to invest at least 95% of its assets in the stocks of a particular index, such as the Nifty 50 or Sensex. A large-cap fund is a type of equity mutual fund that has to invest at least 80% of its assets in large-cap stocks.
Management TypeIndex funds are passively managed because they copy the performance of a selected index. Large-cap funds are actively managed because the fund manager always tries to increase the fund’s performance. 
Portfolio Strategy The fund manager cannot change the portfolio strategy and must only go with the underlying index changes.The fund manager can continuously change the portfolio strategy under the guidelines of the SID (Scheme Information Document). 
Return CapacityThe return capacity of index funds is limited to the performance of the underlying index.The return capacity of large-cap funds can go beyond the benchmark index’s performance.
Risk LevelIndex funds have a risk from overall stock market movements, which is called systematic risk, and this type of risk cannot be avoided by investors.Large-cap funds have a risk that is subject to the fund manager’s decision, called unsystematic risk, and this type of risk can be reduced with a wise investment decision.
Cost of Investment Index funds have a low investment cost or expense ratio, which can be lower than 0.2% because they are not actively managed.Large-cap funds have a higher expense ratio, which can go up to 2.5% because they are actively managed.
Ideal for InvestorsThey are ideal for investors who don’t have the time or knowledge to track the fund’s performance. They are ideal for investors who want to benefit from equity stock diversification and want to track the performance of the fund.
Suitable Investment PeriodThey can provide stable returns over a long period. They provide stable returns over a long period, even when the market falls. 

Best Large Cap Fund

Here is the list of the 10 best large-cap funds as of March 27, 2024:

S. No.Fund NameAUM (in ₹ crores)NAV(in ₹)1-YearReturn3-Year Return5-Year Return10-Year Return
1.Canara Robeco Bluechip Equity Fund₹8,673 crores₹44.70.74%24.58%14.06%14.67%
2.Kotak Bluechip Fund₹5,259 crores₹407.281.86%27.04%12.28%14.32%
3.Baroda BNP Paribas Large Cap Fund₹1,347 crores₹154.462.32%23.38%12.37%15.09%
4.Sundaram Large Cap Fund₹2,855 crores₹14.910.41%28.79%11.91%
5.ICICI Prudential Bluechip Fund₹34,199 crores₹71.813.1%28.63%11.99%15.05%
6.Edelweiss Large Cap Fund₹399 crores₹59.853.51%26.71%12.5%14.52%
7.Nippon India Large Cap Fund₹12,525 crores₹57.796.82%31.08%12.09%15.58%
8.Invesco India Large Cap Fund₹725 crores₹47.76-3.14%25.99%10.71%14.18%
9.Axis Bluechip Fund₹33,050 crores₹45.86-6.66%17.06%11.8%14.21%
10.UTI Mastershare Fund₹10,312 crores₹195.99-3.24%24.81%11.23%13.48%

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What are Large Cap Mutual Funds- Quick Summary

  • A large-cap mutual fund is a fund that invests 80% of its assets in large-cap stocks that have a market cap of at least ₹20,000 crores and that rank from 1 to 100 on the stock exchange.
  • The features of large-cap mutual funds are low risk, stable returns, high liquidity, portfolio diversification, less NAV fluctuations, etc.
  • The difference between index funds and large-cap funds is that index funds invest 95% of their assets in a particular index, while large-cap funds invest 80% of their assets in large-cap stocks.
  • The index funds are passively managed, and the large-cap funds are actively managed.
  • The best large-cap funds to invest in in 2024 are Canara Robeco Bluechip Equity Fund, Kotak Bluechip Fund, Baroda BNP Paribas Large Cap Fund, etc.

What are Large Cap Mutual Funds- Frequently Asked Questions

1. What do you mean by the large-cap mutual fund?

A large-cap mutual fund is a type of equity fund that invests at least 80% of its assets in large-cap stocks with a minimum market capitalization of ₹20,000 crores. 

2. Which mutual fund is best in large-cap?

The best large-cap mutual fund is the Canara Robeco Bluechip Equity Fund because of its long-term returns, which can generate an average return of 14.06% in five years. 

3. Which is better, mid-cap or large-cap?

Choosing between mid-cap and large-cap funds depends on the type of investor you are. For example, if you want to earn stable returns, then investing in a large-cap fund will be a suitable option, and vice-versa.

4. What is the difference between midcap and large-cap?

The difference between mid-cap and large-cap funds is that mid-cap funds invest in mid-cap stocks with a market cap of more than ₹5,000 crores but less than ₹20,000 crores whereas large-cap funds invest in large-cap stocks that have a market cap of ₹20,000 crores or more. 

5. Are large-cap mutual funds safe?

Large-cap mutual funds are the safest equity mutual funds but still carry a risk from the overall market and fund managers’ decision-making.

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