Mutual funds are categorized into large-cap, mid-cap, and low-cap funds based on the market capitalization of companies. Large-cap funds invest mostly in top-notch companies with stable growth and are not severely affected by market changes. As a result, large-cap funds offer stable returns, good capital appreciation in the long run, and regular dividends. But who should invest in large-cap mutual funds?
Highlights
- Large-cap funds are ideal for risk-averse people who want stable compounding of assets at minimal risks.
- Large-cap funds are best for people who have surplus cash and are willing to invest for a minimum of 3 to 5 years.
- Large-cap funds are a good investment option for people who want to take advantage of market fluctuations but do not wish to engage in high-risk investment options.
- A tax of 15% is levied on capital gains from large-cap funds if you hold your funds for less than a year, making it unsuitable for people with short-term investment goals.
- Large-cap funds offer stable returns, good capital appreciation, and regular dividends with low risks, making them an ideal investment option for people new to the domain of investments with a low-risk appetite.
Features of Large Cap Mutual Funds:
Expense Ratio: Fund houses charge a fee to supervise your investments in large-cap mutual funds. This fee is called the expense ratio, and it amounts to a certain proportion of the fund’s total assets.
Investment Period: Large-cap funds invest in top-tier companies that are already at their highest potential; hence the growth of the companies is not exponential but relatively slow and steady.
Taxability of Large Cap Funds: Large-cap funds are subject to Dividend Distribution Tax like any other equity fund. When you dissolve your funds, tax is deducted on the capital gains. However, the tax percentage is determined by the holding period.
Risk Involved in Large Cap Funds: Like any other equity mutual fund, market changes affect large-cap funds. However, these risks are relatively low. The NAV of a large-cap mutual fund does not fluctuate much, even in economic recessions since blue-chip companies are financially stable.
Advantages of Large Cap Funds:
- Large-cap ventures offer stability to your investment profile.
- Top-tier companies can endure market turbulence (bear market). Therefore, large-cap funds can sustain even in times of recessions.
- Large-cap funds also offer good liquidity, which helps you manage your investment portfolio without causing significant loss even during adverse market conditions.
- Large-cap ventures are well-known companies that publish clear business goals and financial statements every year.
- People new to the domain of investments with a low-risk appetite and without much knowledge of market performance can benefit by investing in large-cap funds (top-tier companies).
In conclusion, large-cap funds offer stable returns, good capital appreciation, and regular dividends with low risks, making them an ideal investment option for people new to the domain of investments with a low-risk appetite. However, it is essential to conduct thorough research before investing in large-cap funds as they are subject to market volatility and are moderately high in taxability.
