Are you planning to invest in Mutual Fund? But is very skeptical about the risk associated with it? Then investing in large-cap mutual fund might be your best bet. Large-cap mutual fund investment ensures good return with a moderate risk adjusting mechanism.
To understand well, let’s have a clear view on Large-cap Mutual Fund.
Before getting in the details of the large-cap mutual fund, the first thing that you must know, what is ‘cap’? The word ‘cap’ is nothing but the size of the listed company or, the market capitalization. The product of a company’s outstanding shares and the company’s stock price per share gives the market capitalization. So, when you are planning to invest in equity portfolios, the estimated valuation of the company is very essential criteria for an investment decision.
The publicly traded companies categorize the market cap into three sections- Large-cap, Mid-cap, and Small-cap.
Let’s get a clear idea on Large-cap Mutual Fund.
What is Large-cap Mutual Fund?
The large-cap mutual fund invests a major part of their corpus in the companies with large market capitalization which is above Rs. 20,000 cr. The large-cap companies are the most reputable, trustworthy and strong companies. These large-cap companies have a strong track record of steady wealth generation with moderate risk. Very strong corporate governance practices are involved in the large-cap companies. A large-cap mutual fund investment exposes you to high-quality stocks with an investment objective of a longer horizon time with moderate risks.
Checklists before investing in Large-cap Fund
Here is the list of parameters that you must check before investing in large-cap mutual fund.
- Your Financial Objective– To invest you must know your financial objective. If you are someone who wants to enjoy the return of the equity market but is very afraid of the risk associated with it, then the large-cap investment is the best option for you. The large-cap investment gives a good amount return with moderate risk. Moreover, the large-cap fund doesn’t get affected by the market fluctuation. So when the market is falling, your return will not get fluctuated.
- Your expected Return– The return from the large-cap fund will be very moderate. Never expect to get a high return from a large-cap fund. As because the returns are less volatile, so the return that you expect to get will never be very high but moderate.
- The risk involved- With market ups and down, the Net Asset Value (NAV) does not fluctuate aggressively. The risks involved are very moderate and not aggressive. The investment portfolio is quite stable. So, need not have to worry about the risk involved in the large-cap investment.
- Tenure of your Investment- To be able to enjoy the benefit of large-cap investments, be ready to invest for a minimum of 7-10 years. Generally, the underperformance of the large-cap fund during the bearish market gets balanced and averages out in the long-run which takes a minimum of 7-10 years. So, it’s essential that you invest in a large-cap fund for a longer time period and keep your patience for the entire investment tenure.
- Expense Ratio- To manage your invested money in a mutual fund, a certain sum of money is needed which is called Expense Ratio. It is a % of average AUM (Asset Under Management) and it depicts the operation efficiency of the invested fund. A maximum of 2.50% expense ratio can be charged as regulated by SEBI. A lower expense ratio and long-term investment period help in recovering the money which is lost in the underperformance of the fund.
- Tax on Capital Gains- When you redeem your large-cap fund, then you earn capital gains. But these capital gains are taxable. The amount of taxation depends on the holding period. The holding period is nothing but the time period for which you have invested in the equity mutual funds.
There are two types of capital gains- Long-term capital gains (LTGC) and Short-term capital gains (STGC). You earn LTGC if your holding period is more than 1 year and STGC if your holding period is less than 1 year. At 15%, STGC is taxed. Also, LTGC above Rs. 1 lakh is taxed at 10% without indexation.
Benefits of investing in Large-cap Fund
Here are some of the key benefits of investing in a large-cap fund.
- As the market fluctuates rigorously, the large-cap funds don’t get so much affected. So, the return yield is very stable.
- Professional fund managers manage the large-cap fund to yield maximize return with minimized risk.
- The large-cap funds invest in large-cap companies which are highly reputed and trustworthy.
- The large-cap companies are steady compounders.
- Large-cap funds invest in companies with a great track record, so the return yield is quite moderate, say 9-10% for 3 years.
- In accordance with the current economic condition of India, large-cap investment is a smart choice.