Large Cap Mutual Funds are equity funds that invest a bigger proportion of their total assets in companies with a large market capitalization. Such companies hold a high reputation and an excellent record of accomplishment of generating wealth over a lengthy period.
Before we throw further light on which large cap mutual funds you should invest in, it is important to understand why expert recommend investing in large cap mutual funds in the first place.
Larger cap mutual funds invest in large companies. Following the SEBI guidelines, they need to invest in the top 100 companies by market capitalization. These companies can digest the drastic changes in the economy. Such companies being leaders in their own fields, are less likely to get affected by the market volatility. Even during the pandemic situation, these companies have remained stable or have shown a progressive recovery in 2020 when the entire economy witnessed a down swing. There are new investors who want to invest but have no experience in mutual funds. The existing investors who look for stability may also want to divert their funds towards sustainable investments. For both these categories, large cap mutual funds are the best option. They can yield a 10-12% return over a long period.
Before you go through the list, it is significant to know that they are chosen as per some parameters.
- These large cap funds have been measured by Jensen’s Alpha for the last three years. Portfolio with higher Alpha shows outperformance of the returns predicted by the market.
- The threshold asset size for equity funds is Rs. 50 Crore.
- If we consider the Hurst Exponent, when H is more than 0.5, the series is said to be persistent meaning that the trend is stronger. When the H is equal to 0.5, the series of returns is said to be geometric Brownian time series which is difficult to forecast. And when it is lower than 0.5, the series is said to be reverting.
- Mean rolling returns for the last three years have been used along with Downside risk.
Those whose financial goals are to invest in long term instruments must seriously consider this option. There shall be a minimum investment horizon of five to seven years. You may like to consider the following:
- Axis Bluechip Fund-One year return is 20.31 percent and 3 years return being 19.42%, it is benchmarked against NIFTY 50 Total Return Index. The fund invests 100% in giant and large cap growth-oriented companies. It belongs to the Equity Large Cap category of funds. The portfolio includes Bajaj Finance, HDFC Bank, ICICI Bank etc.
- BNP Paribas Large Cap Fund-It is a large cap fund with 76.17% in large cap stocks, 4.97% in mid cap and 2.87% in small cap stocks. Those who want high returns in a time span of 3-4 years may consider this fund. The fund provided a five-year annualized return of 17.16%.
- Canara Robeco Bluechip Equity Fund-The annualized returns for 3 years stand at 22.70%. The three year and five-year returns are higher than the category average. But the one-year annualized returns are lower than category average by 21.76%. Fund has 96.5% investment in Indian stocks of which 73.95% is in large cap stocks, and 9.76% in mid cap stocks. The fund has a good record of accomplishment and 11 years of history for analysis.
- Edelweiss Large Cap Fund-The fund has 85.26% investment in Indian stocks. 63.74% belong to the large cap stocks, 10.02% is in mid-cap stocks and 1.86% in small cap stocks. 1% of the fund belongs to Government securities. Ten years annualized returns are 15.59%
- IDBI India Top 100 Equity Fund-The fund has been rated No.1 by Crisil. It has stocks like HDFC Bank, ICICI Bank, Infosys and Reliance Industries. The 3 years annualized returns are 19.77%.
- Kotak Bluechip Fund-Again this fund is rated No.1 by Crisil. The mutual funds have the same set of stocks as IDBI India Top 100 Equity Fund.
- Mirae Asset Large Cap Fund-Again it has majority of its investments in large cap stocks (67.98%). Recommended investment horizon is more than three years. Its three years annualized returns are 18.87%. It has higher AUM which may bring lower returns in the future.
The new benchmarks and stricter investment norms have made it difficult for the large cap mutual funds to function fully. They may seem to lag index schemes and ETFs in the recent past. But still, they are the best option for those who do not like investing in index schemes.
It should be kept in mind that the last two years period has been very challenging and the kind of returns which the investors received before might not be the same in the coming years. But large cap companies could be the strongest to invest in through the mutual funds route.
Bhoi Smrutirekha Dharanidhar