Large & Midcap Funds: Get The Benefit of Two Funds In One
Mutual fund schemes incorporate various investment strategies to help investors make most of their investments. One such is Large & Midcap Funds, offering a perfect blend of both funds to provide investors both stability and growth.
Large & mid-cap funds are open-ended schemes that seek capital appreciation by investing predominantly in stocks of large and mid-cap companies. These schemes invest a minimum of 35% of total assets in large-cap companies and a minimum of 35% in mid-cap companies. The risk level of these funds lies somewhere as moderate as funds that are less riskier than pure mid-cap funds but riskier than pure large-cap funds.
Top large & mid-cap funds in 2022 in India
The following table exhibits some of the well-known large & mid-cap funds in India and their respective returns:
Direct plan - Growth option
|AUM(Rs. crores)||1 year(Absolute return)||3 years(CAGR)||5 years(CAGR)|
|Quant Large and Mid Cap Fund||111.15||5.41%||19.20%||10.95%|
|HDFC Large and Mid Cap Fund||5,944.58||2.45%||13.58%||9.90%|
|HSBC Large and Mid Cap Equity Fund||472|
|Sundaram Large and Mid Cap Fund||4,944.36||1.53%||11.68%||10.99%|
|Baroda BNP Paribas Large and Mid Cap Fund||633.57||3.62%||-||-|
Who should invest in large & mid-cap funds?
The large & mid-cap funds are suitable for investors with a higher risk appetite and long investment horizon. A long time horizon is important as these schemes take time to evolve and offer returns. Also, investors who want to gain exposure to mid-cap stocks without being at risk of pure mid-cap funds can plan to invest in these funds.
There are different schemes within the large & mid-cap funds wherein some focus more on large-cap stocks, whereas some on mid-cap stocks. If you are a conservative investor who wants a safety margin, you can invest in funds focusing more on large-cap funds. Else, if you are an aggressive investor with a high-risk appetite, you may invest in mid-cap fund focusing schemes. Investors must consider their investment horizon, risk appetite, and financial goals before investing in these schemes.
Taxation of gains from large & mid-cap funds
Large & mid-cap fund investment gains from equity funds are subject to taxation. The tax rate depends on the duration investors wish to stay invested and gain from the funds. Based on their investment duration, an investor may generate Short-term capital gains (STCG) and Long-term capital gains (LTCG) and be taxed accordingly.
The capital gains from units held for less than one year are considered STCG, which get taxed at 15%. If the holding period is more than a year, the gains generated from units are called LTCG. The long-term capital gains of over Rs 1 lakh are taxed at 10% without indexation, whereas below 1 lakh are tax-free. Suppose your equity gains are 2 lakh in a financial year, so the 10% tax is applied only on 1 lakh while the remaining 1 lakh will be tax-free.
The risk involved in large & mid-cap funds
Equity and related instruments are volatile in the short term. Since large & mid-cap funds primarily invest in equity, wherein 35% of mid-cap stocks are involved, the volatility factor is quite high. Although these funds are diversified across sectors and large-cap companies and have the potential to offer good returns, they get affected by market fluctuations. Hence, if you want to invest in large & mid-cap funds, you must get your risk profiling done. Invest in these funds only if you fall in the range of high-risk appetite.
Return potential of large & mid-cap funds
In mutual funds, a good mix of growth and stability in investment is necessary. That is so because if you worry more about risk and play conservatively, you may have to compromise on your returns in case of market rallies. In this case, it's essential to have a substantial risk factor involved. Alternatively, investing in aggressive stock can put you through the risk of losses if the market dips. In this case, you would need something to stabilize your losses. With large & mid-cap fund investment, you get all the good attributes of investing in mutual funds, like moderate risks and stabilizing entities in the form of large-cap funds. As a result, you get better returns, and that too in various market scenarios.
Advantages of investing in large & mid-cap funds?
Investing in large & mid-cap funds can be advantageous in many ways. Some of the significant benefits of them are as follows.
- Portfolio diversification: Large & mid-cap funds offer diversification benefits as they cover two different market capitalizations in one scheme. It allows investors to get exposure to mid-caps with lesser risk than pure mid-cap funds. The presence of large-cap funds instils a sense of stability within the investors.
- Stability and growth: Pure large-cap funds invest in companies that are pioneers with years of experience in their industry. These companies may not show tremendous growth as they are already well established but can offer excellent stability. Alternatively, pure mid-cap funds invest in companies founded a few years ago. They have the potential to grow in the long run but involve higher risk. With large & mid-cap funds, you get a mix of both funds in one single fund. Hence the returns are better, and the risk is minimum.
- Lesser risk than pure mid-cap funds: Pure mid-cap funds can be a bit risky as they are volatile if you plan to invest for the short and medium-term. For this reason, many investors refrain from investing in these funds without realizing their true potential. Here large & mid-cap funds help tackle the stress of investors as they help them take benefits of mid-cap funds with less risk. Also, the involvement of large-cap funds offers stability to returns and minimizes risk.
- The convenience of investment: Since the large & mid-cap funds invest in two different market capitalizations, it gives investors equal exposure to large and mid-cap funds. It also prevents investors from the hassles and additional cost of investing in two funds with different market capitalizations.
Why should you invest in large & mid-cap funds?
With large & mid-cap funds, investors get the best of both worlds of large-cap and mid-cap funds. While large-cap funds offer the benefit of steady returns, mid-cap funds add high growth potential to your portfolio at a reasonable level of risk. However, it's important to select the best funds in the category and stick to the funds for a longer duration. Large-cap and mid-cap funds seek long-term involvement as they take time to deliver high returns. If you are an investor with long-term financial goals, you can consider investing in these funds rather than investing in two different funds with different market capitalizations.
Large and mid-cap funds have a great potential to multiply the value of your investments, protect you from extreme downturns, and add value to your portfolio over time. If you are an investor with a high-risk appetite and long-term financial goals, you can invest a portion of your money in equity-based funds of large & mid-cap companies. You can even include these funds as a part of your core equity mutual fund portfolio to enjoy the best results in the long term.
Do you have further queries related to large & mid-cap funds? Get them answered with this FAQ section.
Are multi-cap funds and large & mid-cap funds the same?
- Ans: No, they are different. Both funds intend to diversify investors' portfolios. However, multi-cap funds offer investors more diversification as they invest across companies of all sizes (small, medium, and large), whereas large and mid-cap funds invest as their name.
Do large & mid-cap funds come with a lock-in period?
- Ans: There is no lock-in period for large and mid-cap funds. You can invest in mutual funds and redeem your units anytime, as per your wish.
What is the minimum investment amount of large & mid-cap funds?
- Ans: These funds don't require a large sum of money for investment. You can invest in large and mid-cap funds with a minimum of Rs 500 through SIP.
How much should I allocate to large & mid-cap funds?
- Ans: If you are planning to invest in large & mid-cap funds, make sure to get your risk profiling done, and based on the range of risk you fall in, decide on the number of units.