If you are looking for high equity exposure for wealth generation over the long term, large-cap ventures are a good option. Read on to learn about the benefits of this investment vehicle.
If you are new to mutual fund investment and are wondering which funds will generate good returns with relatively less risk.Large-cap mutual funds are a good starting point for a rookie investor.
They are a category of equity funds that invest in blue-chip companies boasting a massive market valuation. But, what exactly are large-cap offerings? Let's take a closer look at the stock to get more clarity.
This is a fund that invests a significant chunk (80%) of its corpus in top-notch companies (Reliance Industries, Asian Paints, TCS, Infosys, HDFC Bank, ACC, ITC, etc.) with a market capitalisation of over Rs.20,000 cr. They are market leaders in their specific industrial sector with an excellent reputation and an impressive track record.
The large-cap organisations have a strong market position and exhibit year on year strong growth with high profits. They have the potential to provide investors with better capital appreciation, steady compounding, and regular dividends. The large-cap stock is the perfect avenue for risk-averse investors with a long-term perspective as the chance of their corpus getting eroded is relatively low.
There are many benefits of incorporating large-cap stocks to an investment portfolio. Read on to learn about a few important ones.
Since these companies are financially sound with proficient business plans, their growth, revenue generation, and income is consistent. Hence, the odds of large-cap ventures facing solvency due to economic circumstances are slim. They are not affected by the market fluctuations and thus offer stability to the portfolio. Furthermore, large organisations also hand out a dividend which helps in the steady wealth creation of the investor.
Given that large-cap schemes invest in blue-chip companies known for high performance and stable earnings, their stock prices don't fluctuate much. As a result, they are in a better position to offer capital appreciation to investors over the years.
Since large-cap companies are well-established and functional for years, obtaining details about their operations, financial statements and profitability levels is a breeze. This transparency makes it easy for investors to analyse the data and establish whether it's an investment-worthy stock.
Another plus is that large-cap equities offer an ample amount of liquidity. It's therefore easy to unravel the entire portfolio in an adverse market without impacting the prices and causing any significant loss. This can be vital during volatile stretches. Fund managers can buy and sell the high cap stock whenever the need arises to maximise returns.
Large-cap offerings have the potential to weather the ups and downs of multiple market cycles. They not only thrive during a bullish run but can also endure market turbulence. It's a safe investment vehicle that can handle an economic downturn and recover quickly without jeopardising the business prospects.
The large-cap segment is the perfect option to diversify across market capitalisations. Since they invest in niche companies from multiple sectors, the portfolio automatically enjoys the advantage of diversification. Moreover, investors don't have to invest in each sector or monitor their performance continually.
In a nutshell, large caps should be a part of every portfolio to give it the much-needed boost. Now that you have a better understanding of what is a large-cap fund , how it works and the benefits it bestows, why hesitate any longer to invest? However, before taking the plunge, do some research on parameters like the expense ratio, funds' past performance, reputation of the fund house and manager, etc. More importantly, make sure to select a fund that aligns with your financial goals, risk tolerance, and investment horizon.