Written by CA Pankaj Chhabra – 
& Megha Jain –
INTRODUCTION TO LARGE CAP MUTUAL FUNDS
If you are looking for investment in equity without taking too much of risk these are the funds for you! Large cap mutual funds are a class of equity funds.
As per SEBI guidelines, these funds invest the major portion of their corpus in the top 100 companies in terms of market capitalization.
These Blue chip Companies the leaders of the market and stocks of these companies tend to remain stable as compared to small-cap or mid-cap companies at times when markets become volatile.
What is a Large Cap Mutual Fund?
Large cap funds are equity funds that primarily invest in companies that rank between 1 to 100 in market capitalization.
These investments are known to offer stability and sustainable returns over time as they invest in the top 100 companies of the Indian market, companies with a market capitalisation of more than 20,000 crore.
Large cap mutual funds are therefore less vulnerable to market volatility.
TOP 10 LARGE CAP MUTUAL FUNDS
List of funds as per the past 3 year and 5 year returns:
| Ranking | Mutual funds | 5 year Return | 3 year Return |
| 1 | Mirae Asset Large Cap Fund – G | 10.32% | 13.03% |
| 2 | Nippon India Large Cap Fund- Growth Plan -G | 10.01% | 15.03% |
| 3 | ICICI Prudential Bluechip Fund – G | 10.97% | 15.56% |
| 4 | SBI Blue Chip Fund- Regular Plan – G | 10.11% | 14.65% |
| 5 | HDFC Top 100 Fund – G | 9.62% | 14.43% |
| 6 | Canara Robeco Bluechip Equity Fund – Regular Plan – G | 12.71% | 14.50% |
| 7 | Kotak Bluechip Fund – G | 10.84% | 14.79% |
| 8 | Baroda BNP Paribas Large Cap Fund- Direct Plan- Growth | 11.95% | 14.76% |
| 9 | IDBI India Top 100 Equity Fund Direct Plan- Growth | 11.05% | 17.55% |
| 10 | HSBC Large Cap Fund- Direct Plan- Growth | 10.03% | 12.62% |
Who should invest in large cap funds?
It is suitable for moderate investors who want to create wealth but are not willing to take higher risk or exposing their corpus to a lot of volatility. Because the large cap companies are known for their stability and a track record of providing consistent returns. It is also a perfect start for the first-time investors in market-linked investments.
It is suitable for those looking to diversify their portfolio with stocks of leading market companies. If one sector fails, the other sectors might help in reducing the adverse effects.
How to start investing online in large cap funds?
- STEP 1- Download the SPA Capital App (Available on Android & Apple Store)
- STEP 2- Create your profile.
- STEP 3- Select any Balanced Advantage fund from the list of Funds
- STEP 4- Complete the payment process.
Factors to be considered while investing in Large Cap Funds
Investors must analyse various factors while investing in large cap mutual funds. Investors should keep in mind their age, goals, risk profile and investment horizon while making any investment decisions.
Investment horizon
Large cap funds are suited for investors with a long investment horizon to experience the full return potential of the fund. Long-term balances out any short-term underperformance and ensures a stable return.
Return potential
As the companies involved are financially strong and well-established, they do not show a lot of fluctuations reducing the return potential. So, if you are expecting higher returns this might not be the ideal investment for you. Small and mid-cap funds might outperform large-cap funds.
Risk factor
The stocks invested in are less vulnerable to market volatility, therefore the risk factor is lower than mid and large-cap funds.
Liquidity
Large cap funds offer higher liquidity. Buyers are always available for large cap companies as they are preferred for their potential of generating favorable risk-adjusted returns.
Experience of the fund manager
Fund Manager’s expertise and experience play a definitive role in generation of returns. Hence always look for the funds whose fund’s manager has right set of qualification to manage the huge corpus of money to generate decent returns.
Expense ratio
Mutual funds are permitted to charge a certain operating expense for managing a mutual fund scheme- sales, marketing, administrative expenses, transaction costs etc. as a percentage of the funds daily net assets. All such costs are collectively referred to as ‘Total Expense Ratio.’ Always go for funds with lower expense ratio to get higher returns.
Exit load
Exit load is a fee charged by the AMCs at the time of exiting or retrieving the units of the fund. Exit load takes away a fraction of your net asset value (NAV). Hence, lower exit load translates into higher returns.
Taxability of Returns from Large Cap Funds
Short term capital gains (STCG) – Gains on these funds are subject to 15% taxation if the holding period is less than 1 year, irrespective of your tax slab.
Long-term capital gains (LTCG) – If the units are held for more than a year, the gain is considered as LTCG (Long Term Capital Gain) which is tax free up to the threshold limit of Rs. 1 lakh and is taxed 10% if the gains exceed the threshold limit in a financial year.
Dividend – The dividends offered by mutual funds were made tax-free in the hand of investors until 2020. But after the amendments made in the Union Budget 2020, the dividends offered are added to the overall income and are taxed as per the income tax slab you fall under.
| Particulars | Holding period | Taxation |
| STCG
(Short-term capital gain) |
<1 year |
15% on your gain irrespective of your tax slab + Cess+ Surcharge if applicable |
| LTCG
(Long-term capital gain) |
>1 year |
10% (Only if gains exceed a threshold of Rs. 1Lakh in a financial year) + Cess + Surcharge if applicable |
| Dividend offered by mutual funds | Added to overall income and taxed as per the income tax slab |
FREQUENTLY ASKED QUESTIONS
- What are large cap funds?
Mutual funds that invest in top 100 companies of India in terms of market capitalisation.
- How are large cap funds taxed?
Short-term capital gains (stocks hold for less than 1 year) are taxed 15% irrespective of your income tax slab.
Long-term capital gains (stocks hold for more than 1 year) are taxed 10% if the gains exceed the threshold amount of Rs. 1lakh.
- What are the expected returns of large cap funds?
In long-term large cap funds may give a return of 10-12%.
- Where do large cap funds invest?
Large cap funds primarily invest in top 100 companies of India.
- Who should invest in large cap funds?
Ideal investment for investors seeking wealth creation with minimal risks and are happy with moderate but consistent returns.
- What is the lock-in period for large cap funds?
There is no lock-in period for large cap funds. One can buy and sell as and when they wish to.
- What are the risks involved in investing in large cap funds?
Large cap funds tend to be safer than small and mid-cap funds. However, are not immune to market fluctuations.
- Are large cap funds better than FDs?
In long-term large cap funds tend to outperform FDs however, the risk involves is also higher than FD.
