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What fund should you invest into Large cap or Midcap Funds ?

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Large Cap funds are the open ended equity schemes which invest in large cap stocks. Large Cap Stocks are those as defined as the top 100 by market capitalization of the listed companies as per BSE/NSE. All the Fund managers need to align their portfolios entirely from this universe only. The normal benchmark to compare the performance of the large cap funds are any of the two indices i.e. NSE Fifty popularly called Nifty or BSE Thirty  popularly known as Sensex.  

Portfolio should be a maximum of 80% of total assets invested in equity & equity related to Large Cap companies.

Mid cap funds are open ended schemes that invest in Equity shares that range from 101 to 250 top listed companies as per their market capitalization in the stock markets i.e. NSE / BSE. The portfolio construct must contain at least  65% of total assets invested in equity & equity related to Mid cap companies. The normal benchmark to compare the performance of Midcap Funds is BSE Midcap Index

Equity as an asset class itself is risky and needs investors to stay invested for a reasonable period of time to ride out volatility and generate reasonable returns. Among the two, Large cap funds are less prone to high volatility and also grow in line with the index growth. On the other hand Midcaps have sharper rise and sharper fall when the markets turn volatile. 

Therefore Large cap funds are suggested to invest at least 3 to 5 years, Mid cap funds are suggested for a slightly longer tenure say 5 to 7 years to enable the investor to see optimum returns. 

Investors who are looking for lower risk with long term investment will go for large cap funds, Investors who are looking for higher risk with higher returns will go for Mid cap funds.

Taxation in Mid & Large cap funds:

Short term capital gain tax: If the investments are held  for less than a year the gains are short term and taxed at 15% flat rate.

Long term capital gain tax: If the investments are held for more than a year, the gains are categorized as long term. While such gain upto Rs 1 Lakh is free of tax, beyond that the client is taxed at 10% rate.

Top 5 Large cap funds are: ( 20th Nov 2021)

S.No

Scheme Name

1 yr return

3 yr return

5 yr return

1

Canara Robeco Bluechip Equity Fund

37.63%

24.22%

20.92%

2

Mirae Asset Large Cap fund

39.04%

20.35%

19.16%

3

Axis Bluechip Fund

33.64%

23.19%

21.86%

4

Invesco India Large Cap fund

44.65%

21.94%

18.68%

5

Kotak Bluechip Fund

40.22%

22.61%

18.40%

 

Top 5 Mid Cap funds are: ( 20th Nov 2021)

S.No

Scheme Name

1 yr return

3 yr return

5 yr return

1

Invesco India Mid cap fund

53.82%

25.73%

21.93%

2

Axis Mid cap fund

52.02%

29.87%

25.43%

3

SBI Magnum Midcap Fund

71.37%

27.94%

17.69%

4

Nippon India growth fund

63.29%

27.17%

20.94%

5

HDFC Mid cap Opportunities fund

51.58%

22.10%

17.59%

 

Conclusion : If you are new to investing or risk averse by nature you must invest in Large Cap Funds only through the Systematic Investment Plan ( SIP ) process to generate long term wealth. However if you have experience in Equity Mutual Fund investing and are comfortable with volatility and the long time horizon, you may have a combination of Large cap & Mid cap funds. 

By Sangeetha, Sherpani

Safe Harbor : Mutual Fund investments are subject to market risks, please read the scheme related documents before investing. The names of the schemes and the performance are not related and investors need to exercise caution before investing. The past performance of the schemes are not representative of the likely future performance of the investment. 

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