Best Equity Funds To Invest In 2022
While investing in equity mutual funds based on market capitalisation, an investor can choose from large, mid, small, multi, and flexi-cap mutual fund schemes. These schemes have been designed for a specific category of investors with a certain risk profile. This blog will focus on how to invest in the best large-cap equity funds in 2022.
What are large-cap mutual funds?
The first one hundred companies (rank 1st to 100th) in terms of market capitalisation are known as large-cap companies. As per SEBI guidelines, a large-cap mutual fund scheme is an open-ended scheme that predominantly invests in large-cap stocks. The scheme has to invest a minimum of 80% of its total assets in equity and equity-related instruments of large-cap companies.
Best large-cap mutual funds to invest in
| Scheme name (Direct Plan - Growth Option) | AUM (Rs. crores) | 1-year (Absolute Returns) | 3-years (CAGR) | 5-years (CAGR) |
| Axis Bluechip Fund | 34,069 | 16.23% | 18.22% | 18.19% |
| Canara Robeco Bluechip Equity Fund | 6,141 | 16.90% | 19.91% | 17.28% |
| Mirae Asset Large Cap Fund | 30,348 | 18.28% | 16.17% | 15.53% |
| Edelweiss Large Cap Fund | 308 | 17.61% | 16.99% | 15.39% |
| Baroda BNP Paribas Large Cap Fund | 1,213 | 17.75% | 18.17% | 15.30% |
The above table shows that large-cap mutual fund schemes have performed well in the last five years and have given good returns. The top five funds have given a 15% to 18% CAGR return, which is a good return.
Who should invest in large-cap mutual funds?
All equity mutual fund schemes are risky. However, large-cap mutual fund schemes are relatively less risky than mid and small-cap mutual fund schemes. An investor who wants to invest in equity mutual funds but with a relatively lower risk than other equity mutual fund schemes can invest in large-cap mutual funds.
Large-cap mutual fund schemes invest in large-cap companies, most of which are among the top companies in their sector. They have grown well in the past with good profitability. They usually have a good track record of consistent dividend payments. When the overall market is falling, usually, large-cap companies fall less than mid and small-cap companies. Similarly, when the overall market is recovering, usually, large-cap companies recover faster than mid and small-cap companies.
Taxation of large-cap mutual funds
From a taxation point of view, any mutual fund scheme with a minimum of 65% of its total assets in equity and equity-related instruments is classified as an equity scheme. Large-cap funds are treated as equity funds and taxed accordingly.
- Short-term capital gains (STCG) tax: If you sell your large-cap mutual fund units within twelve months of purchase, the capital gain will be classified as short-term capital gain (STCG). The short-term capital gain (STCG) tax will be levied at 15%.
- Long-term capital gains (LTCG) tax: If you sell your large-cap mutual fund units after twelve months of purchase, the capital gain will be classified as long-term capital gain (LTCG). Every financial year, the first Rs. 1 lakh long-term capital gain will be exempt from taxation. The incremental long-term capital gain above Rs. 1 lakh will be taxed at 10%.
Risks involved in large-cap mutual funds
As mentioned earlier, all equity mutual funds are risky. There was a broad market sell-off during events like the subprime crisis (2008-09) and the Covid-19 pandemic (2020). The broader market indices such as the BSE Sensex 30 and the NSE Nifty 50 had seen falls of around 50%. During that time, the NAV of the large-cap mutual funds had also seen a fall of 50%.
Subsequently, the markets recovered and went on to make new highs. During that time, the NAVs of large-cap mutual funds also saw a smart recovery and gave good returns for investors.
Return potential of large-cap mutual funds
In the earlier section, we have seen how the best large-cap mutual funds have given 15% to 18% CAGR returns in the last five years. These are very good returns. Equities have the potential to give inflation-beating high returns in the long run.
In the long run, large-cap mutual funds can benefit from the power of compounding and generating wealth for investors. Large-cap companies have a more stable business model than mid and small-cap companies that are emerging. Large-cap companies have a proven track record of profitable growth with consistent dividend payments. Large-cap companies have generated wealth for their investors in the past and have the potential to continue doing so in the future as well. Hence, large-cap companies are also known as blue-chip companies, and large-cap mutual funds are also known as blue-chip funds.
Advantages of large-cap mutual funds
Some of the advantages of large-cap mutual funds include:
- They invest in India's top 100 companies by market capitalisation. Most of these companies are among the leaders in their sectors or categories. These companies have a proven track record of high sales growth, superior profit margins, consistent dividend payments. Such companies are known to give good returns to investors and create wealth for them.
- Large-cap mutual funds invest in the top companies across various sectors, thus providing the benefit of a diversified investment portfolio to their investors. An investor needs to diversify their portfolio to reduce the risk.
- While all equity mutual funds are risky, the advantage of investing in large-cap funds is that they are relatively less risky than mid and small-cap mutual funds.
Reasons to invest in large-cap mutual funds
Some of the reasons to invest in large-cap mutual funds include:
- Potential to generate inflation-beating high returns
- Opportunity to invest in India’s blue-chip companies
- Opportunity to invest in a diversified investment portfolio of companies belonging to various sectors
To start investing in large-cap mutual funds as per your appropriate asset allocation, download the Glide Invest App from Google Play Store or Apple App Store and get started.