About Large Cap Mutual Funds
Equity funds have gained a lot of popularity over the past few decades. Mutual Funds have been growing and trending for a couple of decades, given its benefits life, professional portfolio management, lower risk due to portfolio diversification, higher than inflation market returns, and various linked investment options availability. One of the categories of Equity-based Mutual Funds or Equity Funds is the large-cap funds.
Cap refers to the market capitalization of a company, i.e. the average valuation of the company based on the market value of its shares. According to the size of these capitalizations of different companies, they are diversified into different categories like small-cap, mid-cap, or large-cap.
Large Cap companies usually are the ones that come into the top 100-200 publicly listed companies that also feature in the major indices like Sensex and Nifty50. So as the name suggests, Large Cap Funds are those which restrict their equity selection to the stocks of these top 100-200 companies.
What are Large-Cap Funds?
Large Cap funds are mutual funds especially created to invest only in the large-cap companies of the country. These are usually the top 100-200 companies that are featured in the Indices like Nifty 50 and the Sensex. It is a common perception that these businesses have sound businesses as they are extremely large and have the top company’s position in their countries.
These funds are known to withstand bear market as well Therefore generally Large Cap Funds are normally considered to be stable and safe. However, they can be beaten by small-cap and mid-cap funds that have higher risk exposure. These funds are actively managed and hence portfolio churning, exit loads, and expense ratios of these funds must be considered while making an investment decision.
Expense ratio is the ratio of expenses occurred by AMC for a scheme to its Average Weekly Net Assets. In short, it means how much of the investor’s money is going to be spent on the expenses of the scheme and how much is invested. Ideally, with the increase of net assets, the expense ratio should come down. To test this, the expense ratio should be tracked over time. All Mutual Funds and ETFs charge these expenses to their investors and can include various operational costs like:
- Administrative costs
- Compliance Costs
- Distribution Costs
- Management’s Salaries
- Marketing expenses
- Shareholder’s services
- Record-keeping and custodian’s fees
- Others,
However, the expense ratio does not include transaction costs, taxes, and brokerage as it is already included in the price of different assets purchased. However, there are certain other fees/expenses other than the expense ratio that an investor has to pay. For example the exit load.
What is Exit Load?
It is a fee charged by the mutual funds if investors exit a scheme within the lock-in period of the fund, i.e. within a certain period of time from the date of the investment as mentioned in the fund document or KIM of the fund. (KIM or the Key Information Memorandum of the Fund is an abstract of the Offer Document of the Fund). These exit loads are charged to discourage the investors from exiting early from the fund.
Investing in Large Cap Mutual Funds
Choosing a scheme of right portfolio for your needs is extremely important. The following parameters to keep in mind while selecting a fund are extremely important.
- Market Capitalisation of the Scheme
- Size of the Fund
- Fund Manager
- Past Performance
- Risk Parameters of various rating agencies like CRISIL
- Tax Benefits
These are the most basic and the most important parameters to check in any mutual fund and match them with your financial goals. It is extremely important to go through proper research of your own and then make a calculated decision because even if the large-cap funds are comparatively safer, they are still dependent on equity stocks of companies and that can pose a market risk.
About CRISIL Ratings
CRISIL is a credit rating agency in India that gives credit scores to organizations and individuals. It also gives a risk-return performance rating to different securities like Mutual Funds. In Mutual Funds, it gives its ratings in the form of stars. The top 10% of the greatest performing funds are given 5 stars while the least performing 10% of funds are given 1 star.
About the tax benefits in Mutual Funds
Mutual funds are one of the most tax-friendly investment options. The most important tax benefit is that tax incidence occurs only during the sale of the Mutual Funds. Tax incidence on Equity funds like the large-cap funds occurs at the rate of 15% plus 4% cess. Long-term capital gains on the equity funds schemes have 10% plus 4% cess provided on gains over 1 lakh. Until 1 lakh, the long-term capital gains are absolutely tax-free.
Under the 80C ELSS qualify for a deduction from taxable income. The maximum taxable deductions are 1.5 lakhs. The maximum investment amount eligible for tax deduction under Section 80C is Rs 1.5 lakhs. Investors in the highest tax bracket (30%) can therefore save up to Rs 46,350 in taxes (Rs 1.5 lakhs X 30.9% tax + cess) by investing in ELSS mutual funds. An investor should note that Rs 1.5 lakhs is the overall 80C cap including all eligible items like employee provident fund (EPF) contribution (deducted by your employer), PPF, life insurance premiums, NSC, and ELSS mutual funds, etc.
Some of the best performing Large Cap Funds in the past few years are:
Fund Name | CRISIL Rank | AuM (in cr.) | 5yr returns |
Axis Bluechip Fund-Direct Plan-Growth | 34,583.67 | 21.12% | |
Canara Robeco Bluechip Equity Fund-Direct Plan-Growth | 5690.59 | 20.01% | |
Mirae Asset Large Cap Fund-Direct Plan | 31,128.95 | 18.17% | |
Edelweiss Large Cap Fund-Direct Plan | 311.20 | 17.85% | |
BNP Panbas Large Cap Fund-Direct Plan | 1,245.28 | 17.85% | |
Invesco India Large Cap Fund-Direct Plan-Growth | 466.94 | 17.76% | |
UTI Master share Unit Scheme-Direct Plan-Growth | 9,703.31 | 17.71% |
