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Invest in some of the best large and small-cap funds in India in 2022

Let us dive deep into some of the best large and small-cap funds in India in 2022. Get insight about who should invest, taxation and more.

Mutual funds are one of the best ways to reap maximum returns on investment. Each scheme has categorization based on risk and objective. One among them is market capitalization. It indicates the size of the companies in which funds invest money. The funds of these companies are often classified based on the market capitalization as large-cap, mid-cap, and small-cap. Based on this categorization, investors can make well-informed decisions for themselves. This article discusses large and small-cap funds to help you understand what they are, the difference between them, and if they are ideal to invest in. 

Large-cap funds: They invest in companies ranking in the top 100 based on market capitalization and whose market cap is more than Rs.20,000. Large-cap funds invest 80% of their assets in equity and related instruments of large-cap companies.

Small-cap funds: They invest in companies that rank below 200 based on market capitalization. These companies have a market capitalization of Rs 5000 cr and below. Small-cap funds invest their 65% assets in equity and related instruments of small-cap companies.

Best large-cap and small-cap funds in 2022

The following table shows some well-known large-cap and small-cap funds in India and their respective returns with time.

Scheme NameDirect plan - Growth optionAUM(Rs. crores)1 year 3 years(CAGR)5 years(CAGR)
Large Cap funds 
Quant Focused Fund76.946.44%19.65%14.45%
Canara Robeco Bluechip Equity Fund6,647.286.15%16.71%14.63%
Templeton India Value Fund633.3615.83%16.64%11.10%
IDBI India Top 100 Equity Fund586.2110.01%16.48%11.47%
Sundaram Dividend Yield Fund258.4110.01%15.38%13.06%
Small cap funds
Quant Small Cap Fund1,664.2117.83%39.43%20.84%
BOI AXA Small Cap Fund283.515.89%33.49%-
Canara Robeco Small Cap Fund2,344.1330.65%32.99%-
Kotak Small Cap Fund7,235.8217.14%30.74%17.79%
Edelweiss Small Cap Fund1,165.117.78%28.05%-

Who should choose large-cap funds?

Large-cap funds generally carry lower risk and provide moderate returns than small-cap funds, where there is significant exposure to equities and higher risk. These funds offer stable returns even in volatile market situations. Investors of the mid-age group who want higher returns than debt funds can choose large-cap funds and generate returns without exposing themselves to higher risks. Retirees with a low-risk appetite can also invest in top-rated large-cap funds with other equity-related products. 

Who should choose small-cap funds?

Small-cap funds can offer investors high returns provided they are willing to take high risks. This type of fund investment is suitable for young investors who keep high expectations from the market and have a high-risk appetite. 

Investors with a long investment horizon can choose to invest in small-cap funds. That is so because a long investment period lowers the risk in small-cap funds. Besides this, investors must diversify their portfolios across various asset classes or in the same asset but different mutual funds colonies. Doing so ensures that your portfolio is well balanced against the risks.

Taxation of Large-cap and small-cap funds

The gains from large-cap equity funds from the holding period of 12 months get taxed at 10%. However, the capital gains of up to Rs 1 lakh from redeeming the units are tax exempted. If the holding period is less than one year, investors are levied with tax at a 15% rate.

In small-cap funds, if the investor redeems the units before one year, the gains will be considered short-term capital gains and taxed at 15%. 

Risks in large and small-cap funds 

Large-cap funds invest in large-cap companies having a good track record and reputation in the stock market. Besides, these funds have a significant share in the market as they deliver consistent performance, making them riskier. Since the small-cap funds invest in small-cap companies, they may have a low capital base but show better growth. However, these funds are the riskiest of all the cap funds. They go through high fluctuation levels in the market, which increase the risk for investors. Investors must consider their risk profile and financial objective before investing in both small and large-cap funds.

Returns potential of large and small-cap funds 

Large-cap funds offer stable and steady returns over time while ensuring low volatility. Small-cap funds may offer a higher return than large or mid-cap funds, but they are more volatile because investments are made predominantly in small-size companies. These companies may or may not perform well over the years and have chances to vanish from the market. 

The growth potential of large and small-cap funds with time 

Investment in large-cap funds grows slowly in comparison to small and mid-cap funds. That is so because large-cap funds predominantly invest in large companies that are already stable and have high market capitalization. On the other hand, small-cap funds have the potential to show exponential growth than large-cap funds. Since the small-cap companies have lower share sizes, they have the potential to grow in the future. 

Conclusion

Investors with low to moderate risk appetite and medium-term financial goals can invest their major portion of money in equity-based funds of large-cap companies. If you are an investor with a long-term horizon and a high-risk appetite, you must choose a higher concentration of equity funds for small and mid-cap companies. Investors must shift their investment from small-cap to mid-cap and then large-cap with growing years and increase their risk appetite with time.  

FAQs

Got any queries related to large-cap and small cape funds? We have got you covered with this FAQ section.

  1. What is market capitalization?
    • Ans: Market capitalization, referred to as a market cap, is the company's total market value based on the value of its owned shares.  
  2. Which funds offer more stability, large-cap or small-cap funds? 
    • Ans: Large-cap funds offer more stability. However, the returns of these funds are comparatively lower than small-cap funds. 
  3. How to calculate market capitalization? 
    • Ans: The market capitalization of any company can be calculated with the following formula, Market capitalization = the company's total shares x the market price of each share.
  4. How to select the best large-cap funds?
    • Ans: As an investor, you must consider your financial goals and investment horizon. Also, it's imperative to check the risk and return of various large-cap and small-cap funds and the expense ratio of the scheme. A higher expense can significantly impact your returns. While investing in large-cap and small-cap funds, select those funds that have fewer expense ratios and taxes.

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