How To Choose Best Large Cap Mutual Funds

Large cap mutual funds schemes invest a larger proportion of their corpus in companies with large market capitalization in accordance with SEBI (Mutual Funds) Regulations. Market capitalization is calculated by the number of shares outstanding multiplied by the current market price of one share; for example, a company that has 1 lakh shares outstanding and the current market price of each share is Rs.100, has a market capitalization of Rs.1 crore (1 lakh shares multiplied by Rs100 per share). According to the new SEBI guidelines, schemes classified as large cap have to invest at least 80% of their assets in 100 of the biggest companies listed in the stock exchange in terms of market capitalization. The list of stock with market capitalisation is shared by AMFI from time to time. The remaining can be invested in mid or small cap stocks as per Scheme Information Document. Since large cap companies are the ones that have been around for a very long time and have a proven track record, these investments are ideal for risk-averse investors who have a long-term holding period for about 5 to 10 years.

• Large cap mutual funds schemes have the potential to generate attractive returns in the long run. They are wealth compounders and along with capital appreciation, large cap companies are known to pay regular dividends.
• Since most large cap companies are established, trustworthy and have strong corporate governance practices, investments in large cap funds are generally less risky and endeavour to provide steady returns, when compared to mid and small cap funds.
• In a bear market, where investors are looking for 'safe havens' to park their money, large cap funds have the potential of outperforming small and mid-cap funds.
• Large cap funds are suitable for investors who want growth in their portfolio through equity exposure to high quality stocks, but want stability as well.
• These investments are ideal for people who are investing in mutual funds for the first time as they are generally considered safer.

• Investment Objective : Investors must identify their investment objective, time horizon and risk appetite to be able to assess if a large cap fund is a suitable choice for them. Large cap funds are best suited for risk-averse investors who have a long-term investment horizon.
• Consistent performance : Once it has been validated that a large cap mutual fund satisfies your investment criteria, you should look for a fund which has consistently beaten its benchmark index and outperformed its peers. Best large capmutual funds have a reasonably long and consistent track record.
• Risk-Return tradeoff : Select a fund which gives better returns than others for the same amount of risk taken.
• Cost : All mutual funds charge a fee to manage your money, which is called 'expense ratio'. According to the new SEBI mandate, funds cannot charge an expense ratio exceeding 2.5%. Judiciously select a fund with a lower expense ratio as this will eat into your returns.

The toughest part in making an investment decision is selecting the right mutual fund schemes because the number of choices available can be overwhelming. Investors should exercise due diligence in their selection process as picking the right fund could greatly improve the outcome of their investments and add to their wealth.