Large Cap Mutual Funds2019-09-06T09:24:25+00:00

Large Cap Mutual Funds

Large Cap Mutual Funds


  • Predictable and Efficient Returns
  • Investments in Stocks of Big Companies
  • Improved Market Cycles Handling
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Best Large Cap Mutual Funds in India

 

Best Large Cap Fund Name 3- Year Returns 5- year Returns
Kotak BlueChip Fund10.83%13.52%
Mirae Asset India Equity Fund16.29%18.51%
SBI Bluechip Fund10.75%15.17%
ICICI Prudential Bluechip Fund14.67%114.51%
Aditya Birla Sun Life Frontline Equity Fund13%14.58%
UTI Master Share11.84%13.64%

What are Large Cap Mutual Funds?

 

Large Cap Mutual Funds (also called Big Cap) are essentially those mutual funds whose portfolio consists of the stocks of companies with large market capitalization.

Market Capitalization essentially means the market value of the stocks of the company. Market Capitalization = Number of Outstanding Shares x Stock Price Per Share.

The Securities Exchange Board of India (SEBI) has issued the following guidelines on what criteria qualifies a company as a big cap company.

  • Ranks between 1 and 100 in terms of full market capitalization
  • A minimum of 80% assets in large-cap equity and equity instruments
  • Market Cap of ₹ 20,000 Crores and above.

Given below is a list of some of the biggest large-cap companies across the country

  • Grasim Industries Limited
  • Havell’s India Limited
  • MRF
  • Eicher Motors
  • Nestle
  • Bosch
  • 3M India

Characteristics of Large Cap Stocks

 

Large Cap Stocks represent a fair portion of the equity market across the country and across the world, these are often treated as a core portfolio investment. Here are some characteristics of these types of stocks

Transparency

Large-cap companies are pretty transparent with their stock positions as they have to be noticed as one of the biggest players in the market and hence it becomes easy for prospective investors to look at and analyze public information about them.

Great Dividends

The large-cap or big-cap companies are usually well-established organizations and are more often than not the most picked for dividend income distributions. Mature market establishments contribute to them committing to high dividend payout ratios.

High-Impact and Stability

Big Cap Stocks are essentially blue-chip companies (highly stable ) at their peak business cycle phases with a generation of a well-established, stable earnings and revenue stream. The large-cap stocks generally tend to move with the market economy owing to the size of the market capitalizations. These companies are essentially the ones providing innovative and new solutions, and even things like market news tend to serve beneficial to the stock value and brand value in the broad market as a whole.

Should I Invest in Large Cap Funds?

 

Large-cap companies have been labelled ‘too big to fail’ since it is very uncommon for these companies to just stop their operations for generating revenue. In addition to this,

Obviously, on paper, Large Cap mutual funds look great with lesser risk factors and stable returns. However, the investments are always more geared towards the individual financial goals of that particular investor. How much risk tolerance you have, what is your investment horizon (time period)? The best of large-cap mutual funds are ideal for investors who do not wish to be exposed to the server market fluctuations. If you are a less aggressive investor a Large Cap fund is the ideal go to option for you.

In addition to this, if you are making first-ever investments in mutual funds, it might be ideal for you to try out a much more stable and assured returns scheme like a big cap fund. The stocks of the companies in the portfolio of these large-cap funds have a great history of consistent performance in all cycles of the government, high and low. This, however, does not assure that returns during market highs will be exceptional. However, one thing is assured that these funds will always be among those with less volatility.

So, if you’re looking for assured returns with high stability you should invest in large-cap funds.

Things to know before Investing

 

As discussed, large-cap funds are ideal for less aggressive investors who are less open to risks. They are certainly better than their small-cap and mid-cap counterparts in terms of stability. However, as an investor in the market, you should always weigh the elements of performance of a particular fund and the eventual returns. Some of the factors you should think about are your age, the risk profile (tolerance level), the ultimate financial aims, the investment horizon (timeline). In conjunction with these factors, there are certainly other factors to be taken into consideration, these are as follows:

  • Investment Objective

  • The investment profile plays a big role in deciding the objectives for investing in a large-cap fund. These objectives should align with the goals you wish to achieve with your particular investments. Understanding the style of fund management to understand the performance of the fund.

  • Large Cap Fund Past Performance

  • IJust going by the recent success and performance of the funds while selecting a scheme might not prove to be a wise decision. As a rule of thumb, you should get your hands onto the performance of the fund over a time span in excess of 5 years which will be indicative of how the fund behaves in bullish and adverse market conditions.

  • Fund Manager Experience

  • The fund manager for your particular investment portfolio plays an important part in the generation of appropriate returns. Fund managers with a track record of excellent performance of the previously managed funds should be preferred in order to drive your investments to higher returns as per the market fluctuations.

  • Expense Ratio

  • The expense ratio has a direct impact on your earned returns. In the expense ratio the various costs of the funds like brokerage fees, the cost the mutual fund house will charge and additional fees. Some fund houses will charge high fees but will also offer higher returns. In order to successfully invest in a high-performing fund with high returns the high cost of fees and charges, the NAV, and returns

  • Exit Load Knowledge

  • As an investor, this is one of the costs you incur directly, the exit load plays a role only when you decide to sell acquired units or NAVs (Net Asset Value). Generally, exit load does not value too much and is only a fraction of the owned NAV. Therefore, the lower exit load funds allow, the better it is for the investor.

  • Evaluating a Large -Cap Mutual Fund

  • In order to efficiently evaluate a large-cap mutual fund, an investor needs to look an at the financial ratios which given the performance of a particular fund. Here are the important ratios you need to look at.

  • Sharpe Ratio

  • Sharpe Ratio is basically the risk-adjusted returns of a portfolio. Higher Sharpe Ratio is recommended for a better fund

    Sharpe Ratio =( Mean Portfolio – Risk free rate) / Standard Deviation of Portfolio Return

  • Standard Deviation

  • It is basically the dispersion of the data set from it’s calculated mean or average. In financial terms, it indicates the volatility of a particular fund. Higher the standard deviation, larger the price range and higher the instability.

  • Beta

  • Beta is essentially the way in which a fund responds to the movements of the benchmark indices.

    Beta =1.0 means that volatility of fund is the same as that of the benchmarks

    Beta>1.0 means that volatility of the fund is greater than benchmarks

    Beta< 1.0 means volatility is lower than the benchmark

  • R-Squared

  • R-squared reflects the percentage of fund returns falling in line with the benchmark returns. It is measured as a decimal between 0 and 1.0 or is also reflected as percentages. Movements of the funds with high r-squared will have their securities’ movements explained by the benchmark movements.
    If a fund has R-Squared close to 1.0 or 100% and the beta is below 1 you can conclude that the fund has high returns with respect to risk adjustment.

  • Alpha

  • Alpha measures fund managers ability to drive the fund in a profitable direction when the benchmarks are also registering a profit. Like beta, alpha is an index measured across the decimal 1.0. This means if alpha is greater than 1.0, the fund manager can drive better profits than the benchmarks, if less than 1.0, the funds will register a lower profit as compared to the benchmarks.