Category : New to Investing February 13, 20265 minutes read
Large and mid cap mutual funds invest in a combination of large cap and mid cap stocks, offering investors exposure to both established companies and growing businesses within a single scheme. As per regulatory requirements, these funds must allocate at least 35 percent of their portfolio to each segment, making them equity-oriented and relatively high risk. This structure allows investors to participate in market growth while maintaining a degree of balance between stability and return potential.
Large cap stocks are typically market leaders with strong balance sheets and consistent earnings, which may help provide resilience during periods of market volatility. Mid cap stocks, on the other hand, represent companies in their expansion phase and may offer higher growth potential over the long term, although they tend to be more volatile in the short term. By combining these two segments, large and mid cap funds aim to deliver more balanced risk-adjusted returns compared to investing in only one market capitalisation.
These funds also allow participation across different market cycles, as large caps may perform better during uncertain phases while mid caps may outperform during economic expansions. With relatively good liquidity, regulatory transparency, and suitability for long-term financial goals, large and mid cap funds may serve as a core equity allocation for investors who have a long-term horizon and a moderate to high risk appetite.
Large and mid cap mutual funds are a type of equity scheme that invests in stocks of large and mid cap companies. They are mandated to invest at least 35% of their corpus in stocks of large and mid cap companies each. This enables diversification and allows investors to gain exposure to market leaders and growing companies. As the scheme invests at least 70% of its portfolio in equities, this is considered a high-risk scheme and may be suitable for investors who can withstand market volatility and fluctuations.
In this blog, we will explore the reasons why you may invest in a large and mid cap mutual fund.
Large and mid cap mutual funds represent two types of stocks. These include:
- Large cap stocks, which belong to the top 100 companies on the Indian stock market. These are usually well-established businesses, market leaders in their industries and often household names. They may have strong balance sheets, steady revenues, and a long track record of performance. In a large and mid cap fund, at least 35% of the corpus must be allocated to large cap stocks.
- Mid cap stocks belong to companies that are smaller than large cap companies but bigger than small cap companies. These companies may be in their growth phase and expanding operations to increase market share and improve profitability. A large and mid cap fund is mandated to allocate at least 35% of its portfolio to mid cap stock.
Invest in large and mid cap fund through Bandhan Mutual Fund.
There are several benefits of investing in large and mid cap funds. These include:
Balance Between Potential Stability and Relative Growth
One of the main advantages of large and mid cap mutual funds is their inherent balance. Large cap stocks have the potential to provide some protection from volatility, relative stability during market downturns, and potentially predictable earnings and dividends. Mid cap stocks provide higher growth potential as these companies are in their growth phase, giving investors opportunities for capital appreciation as well as exposure to emerging industry leaders.
By combining both, the fund seeks to potentially deliver steady growth without excessive risk, making it suitable for investors who want equity exposure but may be cautious about market volatility and fluctuations.
Participation Across Market Cycles
Market cycles impact large cap and mid cap stocks differently. During uncertain or volatile periods, large cap stocks have the potential to perform better due to their market presence, financial strength, and investor confidence. However, during economic expansions and bull markets, mid cap stocks may outperform as growth increases. By investing in two types of stocks, large and mid cap mutual funds allow investors to participate in both phases without needing to rebalance their portfolios frequently. The fund adjusts within its regulatory framework to navigate changes in market conditions, allowing investors to potentially avoid losses.
Long-Term Risk-Adjusted Returns
While mid cap funds have the potential to enable long-term wealth creation, they are also more vulnerable to market volatility. Large-cap funds, contrarily, offer potential stability but may deliver comparatively lower returns. Large and mid cap mutual funds aim to achieve risk-adjusted returns by:
- Tackling volatility through large-cap exposure
- Enhancing long-term wealth creation through mid cap growth
- Potentially reducing the impact of sharp market corrections
For long-term investors, this balance may enable diversified wealth creation as compared to investing in only one segment.
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Liquidity and Transparency
Large and mid cap funds invest in relatively liquid stocks, especially on the large cap side, which helps in efficient entry and exit, better price discovery, and lower liquidity risk. As mutual funds operate under strict regulatory oversight, transparency, regular disclosures, and investor protection is ensured.
Suitable for Long-Term Financial Goals
Like most equity investments, large and mid cap funds are a suitable long-term investment option. They combine steady participation from established large-cap companies with the higher growth potential of mid cap firms. Over the long term, this balanced exposure may help investors ride out short-term market volatility while potentially benefiting from the power of compounding. As a result, these funds align with long-term objectives such as wealth accumulation, retirement planning, funding children’s education, and achieving long-term financial independence.
Read more about the benefits of long-term investing in India.
Suitable for Core Portfolio
As large and mid cap funds are balanced, they can serve as a core equity holding in a long-term portfolio. Investors may complement this core with satellite investments such as small cap, sectoral, or thematic funds based on their goals and risk appetite.
Cushion Against Extreme Volatility
Small cap funds or mid cap funds may experience sharp short-term fluctuations during market corrections or recessions. The mandatory large-cap allocation in large and mid cap funds may help the fund cushion the impact of such short-term volatility. This may make the fund suitable for slightly conservative investors who want to tap into growth opportunities but are wary of sudden volatility and losses.
Invest in Bandhan Large and Mid Cap Fund today!
Large and mid cap mutual funds may offer investors a structured way to invest in equities by combining exposure to established market leaders and growing companies within a single scheme. The mandatory allocation to both large and mid cap stocks may help create a balance between potential stability and growth, allowing investors to participate across different market cycles. While these funds may carry higher risk due to significant equity exposure, they may be suitable for investors with a long-term investment horizon.
