Want the stability of Large-Cap funds and superior returns of Mid Cap funds in a single scheme? The Large and Mid Cap Funds can be your next investment avenue.
In 2017, SEBI launched this new category to offer Stability and Growth to investors exploring equity funds. Instead of separately investing in large and mid cap funds, you can just select a fund that has exposure to both categories.
Read along to know more.
Large Cap Funds primarily invest in the top 100 companies on market capitalization. And Mid Cap Funds invest in companies ranked from 101 to 250 on market capitalization. Therefore, these funds invest across the first 250 companies from various sectors on the market capitalization.
As per SEBI regulations, fund houses must invest at least 35% each in large cap and mid cap companies. The remaining 30% can be distributed among equity, cash, or debt depending on the fund manager’s strategy,
Large Cap companies are thriving organizations with comparatively low volatility, hence lower risk. These companies generate significant returns over a long duration. Mid Cap funds, on the other hand, can be slightly volatile. However, there’s a good chance these funds will deliver superior returns compared to pure large cap funds.
A single scheme can give you exposure to large and mid cap companies. Depending on the Fund manager’s strategy, you may also get exposure to Small Cap or Debt securities. Distributing your assets across various categories of equity and debt can encourage superior returns with lower risk.
These funds can be ideal for children’s higher education, planning a wedding, or buying a house in the next few years. Equity funds perform well over a longer horizon, more than 4 to 5 years.
You can rely on Debt Funds for short-term financial goals. And park your money in these funds to fulfill long-term financial goals.
These funds are less riskier than pure mid cap or small cap funds. Investors wanting to explore equity funds with lower risk can go with these funds. If you are an aggressive investor willing to take more risk, you can consider pure mid cap or small cap funds. However, we recommend discussing this with your financial advisor before taking a call.
Align your investment horizon and financial goals with the scheme that you choose. Equity funds are volatile in short-horizon. Holding these funds for more than 5 years can lower the risk and generate a handsome outcome.
Check the rolling returns of the funds to evaluate the performance. You can compare the performance of the funds from the same category with the benchmark. That’ll give you an idea of the kind of returns the fund has generated over the years. Remember, evaluating past performance isn’t the only criteria to choose the fund.
Fund managers manage your investment by distributing it across stocks of various companies. To actively manage your funds, fund houses charge you a fee in the form of an expense ratio. Active funds have a slightly higher expense ratio than passive ones. You can compare the expense ratio of funds from similar categories before investing.
The taxation on these funds is the same as any other equity mutual fund.
You have to pay a 20% tax on Short Term Capital Gains (Investments held for less than a year).
Long-term Capital Gains(investments held for more than a year) above 1.25 Lakhs are taxed at 12.5%.
These funds are riskier compared to pure Large Cap, but less risky than pure Mid Cap or Small Cap funds. Investors with low to moderate risk appetite and longer investment horizons can invest in these funds.
These funds are also suitable for diversifying the portfolio across market capitalization. Investors wanting to invest in Mid Cap with lower risk can rely on the stability of Large Cap exposure.
To align your risk appetite with the fund, you may want to consider the asset allocation. After investing 35% each in large and mid cap, fund managers may invest a small chunk in small cap or increase the exposure to mid-cap. This can change the overall risk of the fund.
Large and Mid Cap Funds distribute your asset across companies ranking from 1 to 250 on the market capitalization. As these companies belong to various domains, you get an opportunity to diversify your investment. As Large Cap maintains stability, Mid Cap encourages growth. If your risk appetite doesn’t align with pure Mid Cap or Small Cap, these funds can be your entryway.
Got more queries regarding equity funds? Get in touch with our experts.
