How To Select The Ideal Large-Cap Fund

By Adhil Shetty | August 22, 2017

Selecting large cap fund

Without particularly scorching the charts, large-cap oriented Mutual Funds have performed well in the Indian market over the years. If you have been riding the mid- and small-cap wave, now would be a good time to introduce a large-cap fund into your portfolio.

While selecting a large-cap fund over the many mid-cap counterparts may seem a simpler task, you should still be selective in your choice of funds in this segment.

Cushioning Downturns

In several ways, large-cap funds are perfect for anchoring an investor’s long-term equity portfolio. They are inherently safer, easier to understand and show lesser volatility compared to other diversified equity funds. The returns are also far more predictable across various spans of the market.

This is especially apparent during bear phases of the market when they can potentially use their size and scale to weather the storm of negativity that typically ensues.

Performance During Market Rallies

On the other hand, large-cap funds tend to not be at the top of the pack during market rallies. The stocks within such funds are large companies which aren’t as nimble as their mid- and small-cap peers, resulting in them falling behind when the markets are striking all time highs.

However, these funds still reflect the performance of the economy as a whole and can still be regarded as all-weather funds, their showings at market peaks notwithstanding.

Index Funds

Since most of the companies invested in by large-cap funds are also contained within the Sensex and Nifty, it provides an opportunity for investors to pick index funds as a passively managed component of their Mutual Fund portfolio.

These typically have a lower expense ratio and largely stick to the trajectory of the benchmark indices over time.

Do keep in mind that since the large-cap universe is relatively small, a large-cap fund makes its selection from a narrow set of stocks. Hence, it may not make too much sense adding more than a single fund from this class to negate the chance of an avoidable overlap in your portfolio.

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About Adhil Shetty

Adhil Shetty is the Founder and serves as the Chief Executive Officer of BankBazaar.com. Adhil has a Master’s degree in International Relations with a specialization in International Finance and Business from Columbia University in the City of New York, and a Bachelor’s degree in Engineering from the College of Engineering Guindy, Anna University. Adhil is an expert in Personal Finance (Car loan/Home loan and personal loan) and he majorly consults on investment and spends rationalization for the Indian loan borrowers. His guidance is number based with real time interest rate calculations and hence useful for consumer’s real time query.

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