The benefits of investing in large-cap mutual funds

The benefits of investing in large-cap mutual funds

When it comes to investing, everyone has different goals, risk appetite, and return expectations. For some investors, the main focus is to accumulate wealth over the long term, while for others, the goal is to achieve steady returns with low volatility. Investing in large-cap mutual funds can potentially fulfil both these objectives depending on the investor’s particular situation. These funds invest 80% of their assets in the top 100 companies listed in the stock markets by market capitalization.

As one of the most sought-after categories of mutual funds in India due to their reputation, quality, and reliability, these funds can be a worthwhile addition to any investment portfolio. But that’s not all, they come with other benefits too. Let’s find out.

  • Large-cap funds tend to be less volatile than mid- and small-cap funds

While no investment is entirely risk free, large-cap funds tend to be less volatile due to their size. Large-cap companies are often leaders in their respective industries and have strong fundamentals. They generally have large cash reserves, strong corporate governance, and significant assets under management, making them less susceptible to extreme price fluctuations. This stability makes large-cap mutual funds ideal for investors who are risk-averse or have lower risk tolerance.

  • You get diversification at low cost

Large-cap mutual funds offer diversification by investing in various blue-chip companies. With a single fund, you get access to several companies with different business models, sectors, and services. This diversification helps reduce the risk of your portfolio, as it minimises the impact of any one particular company or sector on your investment.

On the other hand, the same diversification would be difficult with investing in individual stocks as it could involve higher costs, commission rates, and risk of loss. 

  • Large-cap funds tend to offer consistent growth over the long term

Large cap mutual fund returns are generally stable as they invest in blue-chip companies for their high performance, consistent growth, and ability to weather market volatility. As these companies are typically well-established and have healthy balance sheets, their stock prices fluctuate rarely. This helps investors benefit from capital appreciation over time as their investments grow in value.

Choose a large cap fund wisely to meet your financial goals

In order to make the most out of your large cap fund investment, it’s crucial to choose wisely. While it may be easy to invest in mutual funds online, take the time to analyse the risk and return ratio, the consistency of the scheme over the past 3-5 years, and your time horizon since large-cap funds often require a long-term horizon.

Additionally, consider the asset size, expense ratio, fund manager, SIP details, cost, and diversification attribute of the fund. By carefully considering these factors, you can maximise your investment and make smart decisions for your financial future.

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