Large cap Mutual Funds are a type of equity where funds are invested in a large portion with companies of large market capitalization. These are essentially large companies with large businesses and big teams. Large cap stocks are commonly referred as blue chip stocks. One essential fact about the large cap is that information regarding such large companies is easily available in publications (magazine/newspaper).
Large cap mutual funds invest in those firms that have more possibility of showing year on year steady growth and high profits, which in turns also offers stability over a time. These stocks give steady returns over a long period of time. These are shares of well-established companies that have a strong hold on the market and are usually considered as safe investments.
Large cap funds are considered to be safe, have good returns and are less volatile to the market fluctuations compared to other Equity Funds (mid and Small cap funds). Hence, investors are more keen to invest their funds in large-cap even though the share price of blue chip companies are high.
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Large cap funds are invested in companies that have a Market Capitalization (MC= no of shares issued by the company X market price per share) of more than INR 1000 Crore. Large cap companies are firms that have well-established themselves in the India market and are leading players firms in their industry sectors. Furthermore, they have a strong track record of paying dividends regularly.
Most of the blue-chip companies are listed on the BSE (Bombay Stock Exchange) 100 index. Infosys, Wipro, Unilever, Reliance Industries, ITC, SBI, ICICI, L&T, Birla, etc., are some of the large cap companies in India.
In order to make a better investment decision in equity funds, one should understand the fundamental differences between its types, i.e.- large cap, mid cap funds, and small cap funds. Hence, discussed below-
Large cap invests in those companies that have the potential of showing year on year steady growth with high profits. Mid-cap funds invest in mid-sized companies. Investors who invest in mid-cap usually prefer those companies that are future’s runaway success. Whereas, small cap companies are generally younger companies or startups that have a lot of scopes to grow.
Large cap companies have a market capitalization of more than INR 1000 crore, while mid caps could be companies with a market cap of INR 500 Cr to INR 1000 Cr, and a market cap of the small cap could be less than INR 500 Cr.
Infosys, Unilever, Reliance Industries, Birla, etc., are a few well-known large cap companies in India. Some of the most emerging, i.e. mid-cap companies in India are Bata India Ltd, City Union Bank, PC Jeweller Ltd, etc. And some of the well-known small-cap companies in India are Indiabulls, Indian Overseas Bank, Just Dial, etc.
Mid cap and small cap funds are more volatile than large-cap funds. Large cap mutual funds tend to outperform both mid and small cap funds during the bull market.
Investors who are looking for a long-term capital appreciation can find large cap funds to be the ideal option for investment. Since blue chip companies are financially strong these funds tend to give stable returns over other equity funds. The return on large cap mutual funds may be moderately low, but they are more likely to be consistent in performance.
When an investor invests in these funds, the chances of their corpus to get eroded is very low compared to other equity mutual funds. Furthermore, large cap companies can withstand the economic crises and can recover faster. Thus, investors who are looking for an investment with moderate returns and low risks can consider large cap mutual funds as one of the best investment avenues.
It is always important to know about the fund that you are going to invest in. When investing in Mutual Funds, especially in risky funds like Large-cap funds, investors need to take into account some of the key parameters like-
The fund manager is responsible for all making investment decisions of the fund’s portfolio. So it is important to review the performance of the fund manager over the years, especially in the tough market phase. A fund manager with the most consistent in his performance should be the preferred choice.
The expense ratio is the chargers like management fees, operation chargers, etc., charged by the Fund Houses by the investors. Some fund houses may charge a higher fee, while some may low. However, the expense ratio is something that should not supersede other important factors such as fund performance etc.
Before Investing, an investor needs to make a fair assessment of the funds' performances that they wish to invest in. A fund that consistently beats its benchmark for over 4-5 year is the one to go with.
The quality and the reputation of the fund house matters a lot. Investors should check if the AMC has a long-standing record, large Assets Under Management (AUM), stared funds. A fund house should have a strong presence in the financial industry with a consistent track record.
As per the Budget 2018 speech, a new Long Term Capital Gains (LTCG) tax on equity oriented mutual funds & stocks will be applicable from 1st April. The Finance Bill 2018 was passed by voice vote in Lok Sabha on 14th March 2018. Here’s how new Income Tax changes will impact the equity investments from 1st April 2018.
LTCGs exceeding INR 1 lakh arising from redemption of Mutual Fund units or equities on or after 1st April 2018, will be taxed at 10 percent (plus cess) or at 10.4 percent. Long-term capital gains till INR 1 lakh will be exempt. For example, if you earn INR 3 lakhs in combined long-term capital gains from stocks or Mutual Fund investments in a financial year. The taxable LTCGs will be INR 2 lakh (INR 3 lakh - 1 lakh) and tax liability will be INR 20,000 (10 per cent of INR 2 lakh).
Long-term capital gains are the profit arising from selling or redemption of equity funds held more than a year.
If Mutual Fund units are sold before one year of holding, Short Term Capital Gains (STCGs) tax will apply. The STCGs tax has been kept unchanged at 15 percent.
|Equity Schemes||Holding Period||Tax Rate|
|Long Term Capital Gains (LTCG)||More than 1 Year||10% (with no indexation)*****|
|Short Term Capital Gains (STCG)||Less than or equal to a year||15%|
|Tax on Distributed Dividend||-||10%#|
*Gains up to INR 1 lakh are free of tax. Tax at 10% applies to gains above INR 1 lakh. Earlier rate was 0% cost calculated as closing price on Jan 31, 2018. #Dividend tax of 10% + Surcharge 12% + Cess 4% =11.648% Health & Education Cess of 4% introduced. Earlier, education Cess was 3%.
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Some of the Best Large Cap Funds to invest in India are as follows-
Fund NAV Net Assets (Cr) 3 MO (%) 6 MO (%) 1 YR (%) 3 YR (%) 5 YR (%) 2018 (%) JM Core 11 Fund Growth ₹9.6126
₹56 4.6 10.3 15 12.9 10.2 10.6 Indiabulls Blue Chip Fund Growth ₹22.85
₹175 8.2 7 14.9 12.7 9.2 12 SBI Bluechip Fund Growth ₹42.3045
₹23,484 6.6 6.2 14 11.1 9.4 11.6 Essel Large Cap Equity Fund Growth ₹24.6817
₹100 7.6 6.2 13.8 11.2 8.5 11.7 ICICI Prudential Bluechip Fund Growth ₹45.21
₹24,640 7.1 6.3 11.5 12.4 9.1 9.8 Aditya Birla Sun Life Frontline Equity Fund Growth ₹236.21
₹21,255 7.8 4.9 9.2 10.3 7.9 7.6 Nippon India Large Cap Fund Growth ₹36.1977
₹13,010 9.2 2.5 8 13.3 8.6 7.3 BNP Paribas Large Cap Fund Growth ₹99.67
₹813 5.7 10 19.5 14.8 8.7 17.2 Canara Robeco Bluechip Equity Fund Growth ₹27.83
₹269 8.4 10.6 18.6 15.7 9.6 15.7 Kotak Bluechip Fund Growth ₹257.575
₹1,470 9.4 9.9 16.9 12.6 8.7 14.2 Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 16 Jan 20
The performance of blue chip companies generally represents the economic scenario. Such companies have a potential to forecast the economy. Furthermore, large cap companies are rarely affected by the market volatility, hence, are considered to be a risk-free investment. Even though the price of large cap stocks is higher, they are valuable in the rising economy for a long term investment. Thus, investors looking for a long-term Investment plan can consider large cap mutual funds as an ideal avenue to invest!
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