Best Large Cap Mutual Fund to Invest in 2022

Large cap mutual funds are equity-oriented schemes that primarily invest in companies that rank high on the stock exchange in terms of market capitalisation. These companies are among the top 100 companies according to market capitalization and  are known for their high reputation in their respective sectors. . 

The fund managers of the best large cap mutual funds strategically invest in stocks of the top companies in India with the aim to generate stable returns for the investors. 

Top Performing Large Cap Funds 

Here are some of the top performing large cap mutual funds in India for you to invest in:

What Are Large Cap Funds?

Fund managers of large cap funds invest in companies that have a large market capitalization such as Reliance, TCS, Hindustan Unilever, etc. As defined by SEBI, large-cap companies should have a ranking between 1 and 100 based on market capitalization. These top-rated companies with a proven track record of exceptional growth, have strong fundamentals like a sustainable business model and a strong  balance sheet. These factors along with an established market presence enable large-cap companies to  withstand market headwinds . Hence, large cap funds that invest in such companies tend to be less risky than mid cap and small cap mutual funds. 

How Do Large Cap Mutual Funds Work?

After investors pool their money in a large cap equity mutual fund scheme, the fund manager identifies the large cap companies to invest in as per the fund’s strategy. They use different tools and techniques to understand market trends, based on which they undertake investment decisions. 

As per SEBI’s regulations, large cap mutual funds must invest at least 80% of their assets in large cap stocks. 

These  established large-cap companies have the potential to  offer steady capital appreciation in the medium to long term horizon. They might not provide aggressive returns to investors like small cap or mid cap funds, but the risk associated with large cap funds  is considerably lower than small cap or mid cap funds. Hence, being patient and having a long-term horizon may be a preferable investment strategy for large-cap funds. Such investments help in steady wealth accumulation and fulfill long term financial objectives.   

Who Should Invest in Large Cap Funds? 

• A Risk Averse Investor

The primary investment rule of large cap funds is putting money in stocks of well-established companies. These reputable companies not only have robust operations and corporate governance but also have low chances of being affected by market volatility. As a result, these funds tend to be less risky than other equity classes of mutual fund schemes. It may be a suitable investment avenue if you are a risk-averse investor.. 

• Long Investment Horizon

In the short term, the returns might be lower depending on the market cycles of the underlying stocks. However, If you stay invested for the long term, such investments offer better returns as compounding takes effect. Therefore, if you have a long term investment horizon, large cap funds may be a viable option for you. 

• Looking for  Stable Returns

These funds have a lower return potential compared to  mid cap or small funds because large cap companies have less room for massive value appreciation. It might underperform in terms of returns generated, but the level of stability is highest. These companies are usually capable of enduring market turbulence or a global financial crisis. Therefore, if you are looking for stable returns, it may be an ideal investment alternative for you. 

Advantages of Large Cap Mutual Funds

Here are some advantages of investing in a large cap fund: 

• Investment Stability

A large cap company is an established player in the market with robust fundamentals and a stable outlook. These companies are conglomerates operating in different areas and providing much needed diversification to investment portfolios. Due to strong corporate governance policies and professional management, rarely will you find any large cap company facing solvency issues. 

Hence, large cap funds are a great option for accumulating wealth in a stress free manner over a long term horizon. 

• Liquidity

As the large cap stocks are the most traded on the stock exchanges in terms of volume, they provide high liquidity to the fund managers. This helps in adding new positions and exiting the existing positions to the fund.  Moreover, it is easy to liquidate your investments in large cap funds because of the continuous demand for these stocks. 

Things to Consider Before Investing Large Cap Funds

You must consider the following factors before investing your money in large cap growth funds:

• Investment Objective

One of the foremost factors before making an investment decision is considering whether it will be able to fulfil your financial objectives or not. Therefore, you must analyze the goals of a large cap fund scheme and see whether it aligns with your individual goals or not. 

• Risk Appetite

The risk appetite or risk tolerance level must also be considered before investing in these funds. As equity-oriented funds, large cap funds are associated with a substantially high level of risk than debt funds. However, the risk level tends to be less risky than mid cap and small cap funds. You must analyze your risk tolerance level before going ahead with an investment decision.

• Past Performance of Fund Manager

A fund manager plays a crucial role in managing the portfolio of a mutual fund scheme. All decisions taken by him/her and strategies adopted affect returns generated from a particular scheme. Therefore, you must analyze their past performance and see whether they have been able to provide expected returns according to the scheme’s outlook. 

You can consider investing in a particular mutual fund after you are satisfied with the performance of the fund manager. 

Taxation of Large Cap Funds

Large cap equity funds are taxed as per rules governing the taxation of equity mutual funds. The gains arising from these are subject to taxation under the head capital gains in ITR. Capital gains are further classified into Short Term Capital Gains (STCG) and Long Term Capital Gain (LTCG) depending on the holding period. 

In case the holding period of these funds is less than 12 months, all gains are taxable under the STCG taxation system. On the other hand, when the holding period is 1 year or more, all gains arising from these are taxable under LTCG. 

The rate of tax on LTCG and STCG is as follows: 

In case of long term capital gains, all profits above Rs. 1 lakh are taxable. Additionally, dividends received on these funds are also taxable. The dividend income gets added to your gross total income and is taxed as per applicable slab rates. 

Final Word   

Large cap funds provide stability to one’s portfolio as they primarily invest in established companies across different sectors and industries. The returns generated might not be exponential in the short-term; however, they can be a stable source of income for investors who have a long term investment horizon. Make sure to do a thorough market analysis before going ahead with any investment. 

FAQs about Large Cap Mutual Funds