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What Are Large-cap Funds? 5 Factors Investors Must Consider

By Author: swarali chavan
Total Articles: 27

Mutual funds have become the most preferred mode of investment today. It is a scheme where investors come together and pool in money that the fund manager invests in various asset classes such as debt funds, liquid assets, and likes. The gains and losses are shared proportionally amongst all the investors.

Mutual funds are further classified as equity funds, debt funds, hybrid funds, sector funds, and so on. These types have their sub-types. One of the prominent sub-type is large-cap mutual funds.

How do they function?
Large-cap funds investment is mainly investing a large chunk of their corpus in companies with massive market capitalisation. These companies hold an excellent track record and are well-established. They also follow strong corporate-governance practices. Such companies generate wealth to their investors slowly and steadily over the long-term.

Who can invest in such a fund?
Large-cap mutual funds are known to provide better capital appreciation over time and distribute the returns fairly. Investors who want to make the most of the equity market but do not want their profits to fluctuate more than the market should go for such funds.

Yet, investors have to consider certain factors before investing in large-cap funds:

1) Risk: They are prone to market-risk but in a moderate way. It all comes down to Net Asset Value (NAV). What is NAV? It is the per unit value of the mutual fund scheme. These rates change every day. However, the NAV does not fluctuate aggressively in large-cap funds. In fact, such an investment offers stability to your portfolio. You must align the core of your investment around them.

2) Return: You cannot expect large-cap to perform erratically as they are known to offer sturdy returns. Moreover, the returns are less volatile. So, do not expect high returns from large-cap funds even when the market is on the peak.

3) Investment horizon: Large-cap funds are ideal for those who look out for long-term investments. Generally, the fund underperforms when the market slumps which averages over seven years. Those who opt for such funds should stick around for at least the said period to allow the fund to offer returns to its full potential.

4) Financial goals: If you can take in a reasonable amount of risk, then this is the ideal fund. The returns from such funds come handy during your retirement phase. Budding investors who are looking for some exposure to equity markets and at the same time are wary of the risk, can invest in large-cap.

5) Tax benefits: The capital gains that you earn through large-cap mutual funds are taxable in your hands. Also, the tax rate depends on your investment horizon.

In case you face difficulty to understand the terms and working of large-cap funds, go to the third-party websites and feed your details in the goal planning calculator. They will assist you with the right mutual fund scheme depending on your goal and requirement.

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