Large cap funds are among the most commonly chosen types of mutual fund under Equity Mutual Funds in India, especially by investors who prefer relatively stable companies with established business models. These funds invest in large, well-known companies that usually have a strong presence in their industries.
While large cap funds are equity-oriented and carry market risk, they are often considered more stable than mid cap or small cap funds. Understanding how large cap funds work, their features, and who they are suitable for helps investors make informed decisions.
What Are Large Cap Funds
Large cap funds are equity mutual funds that invest primarily in large-cap companies. As per SEBI guidelines, large-cap companies are those ranked in the top 100 companies by market capitalisation.
A large cap fund must invest at least 80 percent of its assets in large-cap stocks. These companies are usually leaders in their sectors and have a long operating history.
How Large Cap Funds Work
When investors invest in a large cap fund:
- Money from multiple investors is pooled together into a single fund corpus.
- The fund manager allocates at least 80% of the corpus into large-cap stocks (top 100 companies by market cap, as defined by SEBI).
- These funds are usually benchmarked against market indices like the Nifty 100 TRI or S&P BSE 100 TRI, which represent the performance of large-cap companies.
- Investors are allotted units based on the fund’s Net Asset Value (NAV).
- The NAV changes daily depending on the market value of the underlying holdings.
- Returns depend on how large-cap companies perform and how the broader market behaves over time.
Key Features of Large Cap Funds
1. Focus on Established Companies
Large cap funds invest in companies with stable operations, strong brand presence, and consistent business performance.
2. Relatively Lower Volatility
Compared to mid cap and small cap funds, large cap funds usually show lower volatility, though they still carry equity risk.
3. Equity-Oriented Returns
Returns are market-linked and depend on stock market performance over time.
4. High Liquidity
Large-cap stocks are actively traded, which helps with easier buying and selling
Exit Load in Large Cap Funds
Large cap funds may charge an exit load if units are redeemed within a specific period.
- In many large-cap funds, the exit load is typically 1% if redeemed within 12 months.
- If redeemed after the defined period, no exit load is usually charged.
Note: Exit load terms differ across fund houses, so investors should check the fund’s Scheme Information Document (SID) before investing.
*(This aligns with industry-standard exit load structures seen across mutual fund schemes.)
Risk Profile of Large Cap Funds
Risk-O-Meter
High Risk
Large cap funds are equity funds, so they carry market risk. However, their risk is generally lower compared to other equity categories because of the nature of companies they invest in.
Types of Risks Involved
- Market risk
- Economic slowdown risk
- Sector concentration risk (if the fund focuses on certain sectors)
Time Horizon for Large Cap Funds
Large cap funds are suitable for long-term investing.
Recommended time horizon:
5 years or more
This duration helps investors manage short-term market volatility and benefit from long-term growth.
Returns from Large Cap Funds
Returns from large cap funds are:
- Market-linked
- Influenced by overall market performance
- Dependent on company earnings growth
Large cap funds do not offer guaranteed returns. Over long periods, they aim to deliver steady equity-linked growth rather than aggressive short-term gains.
Taxation of Large Cap Funds (Equity-Oriented Mutual Funds)
Large cap funds are treated as equity-oriented mutual funds for taxation.
Short-Term Capital Gains (STCG)
- If units are sold within 1 year, gains are treated as short-term capital gains.
- STCG is taxed at 20% (as per recent tax updates).
Long-Term Capital Gains (LTCG)
- If units are sold after 1 year, gains are treated as long-term capital gains.
- LTCG above ₹1.25 lakh in a financial year is taxed at 12.5%.
Tax rules may change over time, so investors should always check the latest budget updates or consult a financial advisor before redeeming.
Large Cap Funds vs Other Equity Funds
| Aspect | Large Cap Funds | Mid Cap Funds | Small Cap Funds |
| Risk Level | High | Higher | Very High |
| Volatility | Lower | Medium | High |
| Stability | High | Medium | Low |
| Time Horizon | 5+ years | 7+ years | 7–10 years |
Large Cap Funds vs Index Funds
While large cap funds and index funds may both invest in large-cap stocks, they operate differently:
- Large Cap Funds are actively managed, meaning the fund manager selects stocks aiming to outperform the benchmark.
- Index Funds are passively managed, meaning they simply replicate a benchmark (like Nifty 50 or Nifty 100) with minimal changes.
Key Differences
- Cost: Index funds usually have lower expense ratios because they require less active decision-making.
- Performance: Large cap funds can outperform the index, but may also underperform depending on market conditions.
- Risk: Both carry market risk, but large cap funds also carry fund manager/strategy risk.
For investors who prefer simplicity, low cost, and benchmark-like returns, index funds can be a strong alternative. For those seeking potential outperformance, large cap funds may be suitable (with the understanding that outperformance is not guaranteed).
Who Should Consider Large Cap Funds
Large cap funds may suit:
- Long-term investors
- Beginners starting equity investing
- Investors seeking relatively stable equity exposure
- Investors with moderate risk comfort
They may not suit investors looking for very high growth or short-term returns.
Common Mistakes Investors Make with Large Cap Funds
- Expecting quick returns
- Treating them as low-risk or risk-free
- Investing without a long-term view
- Ignoring overall asset allocation
Understanding the role of large cap funds within a broader portfolio is important.
How Large Cap Funds Fit into a Portfolio
Large cap funds often act as:
- A core equity holding
- A stable base for long-term portfolios
- A complement to mid cap and small cap funds
Many investors use large cap funds as the foundation of their equity allocation.
If you ever feel unsure about how large-cap funds fit into your overall investment plan, speaking with a mutual fund financial advisor can help. The inXits also provides educational support and 24×7 free consulting for investors who want clarity before investing.
Conclusion
Large cap funds offer a way to invest in established companies with relatively lower volatility compared to other equity funds. They are suitable for long-term investors who want equity exposure with a balanced risk profile.
As with any equity investment, understanding risk, staying invested for the long term, and avoiding emotional decisions are key. Choosing large cap funds should always align with your financial goals and time horizon.
FAQs
1. Are large cap funds safe
Large cap funds carry equity market risk but are generally more stable than mid cap and small cap funds.
2. How long should I stay invested in large cap funds
Ideally 5 years or more.
3. Do large cap funds guarantee returns
No. Returns are market-linked and not guaranteed.
4. Are large cap funds good for beginners
They can be suitable for beginners with a long-term approach and moderate risk comfort.
5. Can large cap funds give steady returns
They aim to provide relatively steady equity-linked returns over the long term.
Mandatory SEBI Warning & Disclaimer
Investment in securities market are subject to market risks. Read all the related documents carefully before investing.
Registration granted by SEBI, membership of BSE and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.
The securities quoted above are for illustration only and are not recommendatory.
