Mutual Funds: Top 5 Large and Mid Cap Funds for a 10-Year Investment

Large-cap funds invest in well-respected companies with solid track records and financial standing. These companies have more diversified revenue streams and are more resilient to economic downturns and less volatile than smaller, younger companies.

To reduce risk, large-cap funds often hold a broad range of stocks across many industries. The performance of other sectors can help to mitigate the impact of a downturn in one sector on the fund. This highlights the importance of investing in large and mid-cap mutual funds.

Large Cap and Mid Cap Mutual Funds Description

The Securities and Exchange Board of India (SEBI) has set certain investment ratios that large and mid cap mutual funds must adhere to. The category wise breakdown is as follows:

Large cap stocks, which typically represent the largest and most reputed companies in the Indian stock market, should constitute at least 35% of the fund’s assets. Mid cap stocks are smaller in size than large cap stocks but have significant growth potential and should receive at least an additional 35% of the investment.

The objective of this combination is to combine the high growth potential of mid cap stocks with the stability of large cap stocks. With an established track record, large cap companies offer more stability, while mid cap companies have the potential for higher returns but also higher risk.

Investors looking for a balance between risk and return should consider large and mid cap funds. Investors with a medium to long term investment horizon and moderate risk tolerance should consider these.

Top Large Cap and Mid Cap Funds for Investment

The table below shows the performance of some of the top large and mid cap funds over the last decade and highlights the importance of including one or more of them in your mutual fund category.

Why invest in large-cap and mid-cap mutual funds?

Buying large-cap and mid-cap mutual funds is beneficial for many investors for the following reasons:

Stability of large-cap stocks: These funds typically invest in established, financially stable companies. Their shares are less volatile than shares of smaller companies, providing a more stable basis for the fund’s value.

Growth potential of mid-cap companies: The fund’s mid-cap stocks have the potential to provide higher returns. Expanding companies that have the potential to grow into large companies in the future are mid-cap companies.

Diversification: To spread risk, large and mid cap funds invest in a variety of companies across multiple industries. Strong performance in other sectors can offset declines in one area, improving the fund’s overall performance.

Moderate risk tolerance: If you have a moderate risk tolerance and can tolerate some market fluctuations, large and mid cap funds may be right for you.

Medium to long term goals: These funds are best suited for an investment horizon of 3 to 5 years, giving you enough time to weather market fluctuations and have a chance of achieving your goals.

Risk awareness: As with any market linked investment, returns in large and mid cap funds are not guaranteed. Even if it is lower than other solutions, there is still some risk.

Investing in large- and mid-cap companies reduces the fund’s natural diversification, thereby reducing its reliance on the performance of any single company. It is important to remember that while large- and mid-cap funds are more stable than pure mid- or small-cap funds, they are still market-linked investments and carry inherent risks.

Overall, large- and mid-cap mutual funds can be a useful resource for investors looking for diversification, a potentially smoother investment path, and a more balanced risk-reward ratio compared to pure mid- or small-cap options.