How to invest in large cap mutual funds? What factors should you consider?

mutual funds

A mutual fund is an investment vehicle that pools money from many investors to purchase securities. These can include equities, bonds, and other assets. There are various mutual fund categories that you can choose from based on their market capitalisation or market cap (the market value of the publicly traded company.) One category is large cap funds that have the potential to provide investors with stability and income and offer a low-risk way for investors to diversify their portfolios.

What are large cap funds? 

Companies with a significantly high market capitalisation – around Rs 20,000 crores or more – are listed as large-cap companies. Large cap mutual funds invest primarily in stocks of large and financially stable companies ranking from 1 to 100 in the Indian stock exchanges by market capitalisation.

Large cap companies usually dominate the industry as they have strong fundamentals such as cash flow, high earnings, and balance sheets. They have a significant market presence and usually have been functioning well over decades. Also, these companies have earned a solid reputation among investors due to their stable returns and maturity in bearing risks during uncertain times.

How to invest in large cap funds?

Investing in large cap equity mutual funds or in other types of mutual funds is easy, fast, and convenient with the paperless online process enabled by websites and dedicated apps. Depending on the website or app you are using, the steps may differ but typically, the steps involve –

  • Simply login to the dedicated app or website using your phone number and basic details
  • Complete your KYC procedure for account opening
  • Provide your bank details to carry out the transactions
  • Now, choose a large cap fund
  • Decide the amount and route – lump sum or SIP payment
  • Make the payment and track your investment
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Factors to consider while investing in large cap mutual funds

  • Your financial goals

Large-cap mutual funds generally offer steady returns with a low level of risk, making them ideal for retirement, children’s education, or other long-term objectives. Thus, before investing, have a clear understanding of how the assets will contribute to your overall financial objectives and future success.

  • Look at the expense ratio

This is the fee charged by mutual fund companies for managing the fund, and it can have a big impact on your overall profitability. Generally, lower expense ratios are better than higher ones. That’s because a lower ratio means that more of the total assets are available for investment rather than being used to cover fund management costs.  

  • Past performance

Look at how the large cap equity fund has performed over the past 1 year, 3 years, 5 years, and 10 years. This will give you a good idea of its long-term track record and whether it’s likely to continue performing well in the future.

  • Investment period

While large-cap funds may not offer the same potential for short-term gains as their smaller counterparts (small and mid-cap funds), they can be a wise choice for long-term investors. Long-term investments may be more volatile in the short term, but their underperformance averages out in the long term.

Closing thoughts

Large cap mutual funds can offer you the necessary stability, potential to earn inflation-beating returns, and, most importantly, exposure to a diversified group of established companies that are less likely to experience dramatic fluctuations in their stock prices. This stability can be appealing to risk-averse investors who want to protect their capital during market volatility while still earning a healthy return on their investment.

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