How to Pick Large-Cap Funds?

If you have been sticking to only the mid-cap or small-cap funds so far, it’s a good time to test your luck with the large-cap funds. This is because the Street has shifted its attention to the large cap stocks and the funds are also performing well in the Indian market.

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It’s natural to assume that picking large-cap mutual funds will be simpler than picking small-cap or mid-cap funds. However, you must be careful with your choice.

Impact of Market Rallies

During market rallies, you can often observe a major impact on your large-cap funds. This is because the mid-cap and small-cap funds are more sensitive and adept in comparison to their large-cap peers. So, you may find your large-cap funds lagging behind even as others are enjoying a high growth. That said, the large-cap funds still have a quality of “all-weather” funds and largely reflect the status of the economy.

Significance of Index Funds

The majority of companies invested in by large-cap funds are usually included in Nifty and Sensex. So, it makes sense to pick index funds as a passively managed segment of your portfolio.

Not only index funds usually stick to the trajectory of the benchmark indices over time, they also have a low expense ratio.

It’s important that you look at the long term returns and how volatile a large-cap fund has been rather than looking at the holdings. If there are about 70-80 large-cap funds, then it’s safe to assume that 20 of these won’t even match the return of the index. However, in the middle, you will find the index funds which you should go for. These have the capacity to beat the benchmark by as much as 10% on a year-over-year basis.