What are large cap mutual funds?
large cap mutual funds are the funds that invest in the top 100 companies which have a market capitalization of over INR 20000 crores. These funds are known to provide consistent returns to investors over time. Generally, these funds invest in companies that are big market players in their respective sectors, thus staying stable during any sort of volatility in the market. The companies associated with these funds have a good reputation in the market with excellent performance history.
Who should invest?
A significant characteristic of the best large cap funds is that they are less risky in the volatile market and offer higher returns than mid-cap funds and small-cap funds. Thus investors who are averse to risk and want to play safe should opt for large cap funds over mid-cap and small-cap funds in their portfolios. Investors who are new to investing in mutual funds should start with investing in large cap mutual funds since it comes with minimum risks. The companies associated with the best large cap mutual funds have a consistent track record over market highs and low. Hence investors would not expect exceptionally high returns during favorable market conditions. However, the returns offered are stable and less volatile.
Things to consider while investing:
- Objective – Investors should ensure that their goals and the aim of the fund are in sync. Investors should first understand the cycle of fund management to analyze its performance
- Past Performance – A fund that performed well in the recent past need not perform well in the future. However, funds that have shown poor performance in the past are less likely to outperform others in the future. Thus it is vital to analyze the past performance of the funds and pick the funds which have showcased consistent performance through all ups and downs in the market
- Fund Manager – Experienced fund managers are a must to manage large-cap mutual funds. This is because the managers play a significant role in generating returns from the best large-cap fund investments. An experienced manager helps in allocating the capital in the correct direction
- Expense Ratio – Expense ratio includes various fees such as brokerage fees, mutual fund house fees, etc. thus directly effecting the investors. It is essential first to determine the different costs involved. One must, however, remember that some fund house with a higher fee may also offer higher returns
- Exit Load – Though this comes into the pictures at the time of redemption only, investors should still consider it while starting with their investment journey. The exit load takes with it a fraction of the Net Asset Value. Therefore a lower exit load means a higher return on investment
Unearthing the best large cap funds:
Investors need to analyze various ratios to evaluate the best large cap funds. Some of the important ratios are as follows:
- Sharpe Ratio: This ratio measures the risk-adjusted return of the investment. A fund with a higher Sharpe ratio can be considered better than the others
Sharpe Ratio = (Mean portfolio return – risk – free rate)/(Standard deviation of portfolio return
- Standard deviation: This indicates the volatility of an investment from its annual rate of return. Stocks with higher standard deviation have higher volatility in comparison to others
- Beta: This indicates the sensitivity of the fund to the movements of the markets. A Beta of 1.0 means that the volatility id close to the benchmark
- R-squared: This indicates the percentage of returns that are in line with the benchmark. The value of R-squared lies between 0 and 1 or 0 to 100%. Higher value of R-squared means more useful beta
- Alpha: This is a measure of the ability to make a profit when the benchmark makes a profit. This figure can either be 1 or more or less than 1. Higher the alpha figure the better
Best large cap Funds to invest in 2020
| Scheme Name | Quality | Performance | Returns since Inception | 5 Year Rolling Return (%) |
| Mirae Asset Large Cap Fund | Good | Very Good | 15.3 | 18.22 |
| ICICI Prudential Bluechip Fund | Good | Very Good | 13.6 | 15.39 |
| Aditya Birla SL Frontline Equity Fund(G) | Good | Good | 19.8 | 15.32 |
| HDFC Top 100 Fund | Risky, Not Good | Good | 18.1 | 14.65 |
| Nippon India Large Cap Fund | Risky, Not Good | Good | 10.6 | 13.92 |
| Axis Bluechip Fund | Very Good | Good | 12.2 | 13.86 |
| Edelweiss Large Cap Fund | Very Good | Good | 13.2 | 13.85 |
One can use the data from the above table, to have a fruitful discussion with one’s financial advisor and invest in the most suitable scheme.
Direct Plans or Regular Plans?
There is a difference of around 1-2% between direct plans and regular plans. For instance, the average five-year rolling return on Mirae Asset Large Cap Fund was 18.82% in the regular plan, whereas it was 20.91% for the direct plan. Thus it is a good idea to go for a direct plan over a regular plan.
Apart from the large cap funds, one must ensure that they have other funds to manage their regular expenses. This emergency fund can be in the form of short term deposits or liquid schemes. Also, it is a good idea to have health insurance plans to prepared for any health-related emergencies.
