Understanding Large Cap Funds: Definition, Key Benefits, and Features

Sure, mutual fund investments involve market risk, especially when the underlying asset is equity. But, did you know that you can minimise your risk and earn steady returns even with equity funds?

Yes, equity mutual funds are divided into various sub-categories based on the fund’s investment approach, sector of investment, market capitalisation, etc. Within actively managed funds, large-cap funds make investments in stocks of companies with a large market capitalisation, thus offering steady returns. Let us understand more about them.

What are large-cap funds meaning?

Funds that invest a significant portion of their corpus in companies with a large market capitalisation are known as large-cap funds. Large-cap companies are well-established players with a track record of consistently good financial performance. The three adjectives often associated with a large cap company are –

- Strong

- Trustworthy

- Reputed

Since these companies follow strict corporate governance practices and pay their investors steady dividends, large-cap mutual funds are a safe investment option. They are especially ideal for those with a low risk appetite.

Additional Read: What are Large Cap Funds? How are They Different from Mid Cap?

Features of large cap funds

• They offer stability to your portfolio

Since large-cap funds primarily invest in financially sound and established companies known to generate consistent revenue for years, they remain unaffected by market fluctuations. As a result, you can enjoy stable and steady returns on your investment.

• They are suitable for long-term investment goals

When you invest in chip companies known for high performance and stable earnings, you enjoy gradual but steady growth. This is because most of these companies have already achieved their maximum potential for growth or are nearing it. So, investors of large-cap funds can see capital appreciation over the years.

• They are highly liquid

Purchasing and selling large-cap mutual funds is easy since they are highly popular among investors. The liquid nature of these funds is beneficial during adverse market conditions, especially volatile stretches. You can sell your fund units with ease and redeem your earnings.

• They offer multi-sector diversification

Large-cap funds invest their capital in niche companies from multiple sectors. Naturally, your portfolio then benefits from risk diversification. You need not invest in individual sectors or monitor each sector’s performance continually.

How Does a Large Cap Mutual Fund Work?

Large-cap mutual funds in India invest primarily in well-established companies with large market capitalizations, typically ranking in the top 100. These funds focus on companies with a proven track record of stability, profitability, and growth. Fund managers allocate investments in these stocks to provide consistent returns over the long term.

Large-cap funds are relatively less volatile and suitable for investors looking for steady growth with reduced risk. They also benefit from high liquidity as the underlying companies are regularly traded. While these funds offer stability, they may deliver slightly lower returns compared to mid-cap or small-cap funds during bullish markets. 

However, their resilience during market downturns makes them a reliable choice for conservative investors.

Who Should Invest in Large-Cap Mutual Funds?

Large-cap mutual funds are suitable for various types of investors, depending on their risk tolerance and financial goals.

Long-term investors- Those with a long-term investment horizon, typically between 5 and 10 years, can benefit from the steady growth offered by large-cap funds. These funds are ideal for goals like retirement planning or building a financial cushion.

Individuals who want a steady income stream- Large-cap funds often invest in companies known for consistent dividend payouts. This makes them appealing to investors who want a regular income stream alongside capital appreciation.

Investors who want stability- If you prefer consistent returns with relatively lesser risk compared to mid-cap or small-cap funds, large-cap funds are a good choice. While they are equity funds, their volatility is less pronounced due to the financial strength of the underlying companies.

These funds are best for individuals aiming for a balance between growth and stability, with the resilience to withstand moderate market fluctuations.

How to Invest in Large-Cap Funds?

Here’s how you can invest in a large-cap fund online through Tata Capital Moneyfy.

Step 1- Create an account

Register on the Moneyfy platform and complete your KYC process.

Step 2- Submit documents

Provide necessary documents like your PAN Card, Aadhaar Card, and bank details.

Step 3- Choose a fund

Browse and select the large-cap mutual fund scheme you wish to invest in.

Step 4- Decide investment mode

Opt for a SIP to invest regularly or choose a lump sum investment, then proceed with the payment online.

This simple process ensures a quick and convenient way to begin your investment journey from the comfort of your home.

Tax Implications

These funds follow the same tax rules as other equity-linked securities like shares and mutual funds. Short-Term Capital Gains (STCG) apply to investments held for less than a year, while Long-Term Capital Gains (LTCG) apply to investments held for over a year. LTCG up to INR 1 lakh in a financial year is tax-exempt, while gains beyond this limit are taxed at 10%.

Additionally, the mutual fund company deducts dividend distribution tax (DDT) before dividends are distributed. This tax should be considered when deciding between growth and dividend options, as it can significantly impact overall returns and investment strategy.

Bottom Line

Want to start your investment journey today? Start with Tata Capital’s Moneyfy app! Compare between different large-cap mutual funds from the comfort of your home and become investment-ready today.

FAQs on Large Cap Funds

How much do you need to start investing in large-cap funds?

You can start investing in large-cap mutual funds with a minimum lump-sum amount of Rs.100. For Systematic Investment Plans, the minimum investment typically begins at Rs.500 per month. However, these amounts can differ depending on the specific fund's requirements.

Are large-cap funds risky?

Large-cap funds invest in well-established companies, offering more stability and lower risk compared to mid-cap or small-cap funds. However, they are still subject to market fluctuations and can experience volatility, though generally less than smaller-cap funds.

What are the advantages of large-cap mutual funds?

Large-cap mutual funds provide several benefits:

- Invest in established companies with consistent performance.

- Easy to sell and buy due to high trading volumes.

- Potential for regular income through dividends.

- Less volatile than mid-cap or small-cap funds.

Are large-cap funds safe?

While large-cap funds are considered safer than mid-cap or small-cap funds due to investments in established companies, they are not entirely risk-free. They remain exposed to market risks and can experience value fluctuations, though typically less severe than smaller-cap funds.