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March 28, 2019

Large and mid-cap funds: A judicious combination

Equity as an asset class provides myriad of opportunities to invest across sectors and market capitalisation (cap).Within market cap, we are focusing on industry behemoths with large market cap, which are fundamentally safer(especially during volatile phases) but may not provide sharp returns during bull runs, and mid-cap stocks. Investorswho want the best of both worlds can look at large and mid-cap funds. Read on to know more about this newlyclassified equity funds category.


Allows diversification between large and mid-cap stocks


According to the Securities and Exchange Board of India’s recategorisation, a large and mid-cap fund invests minimum 35% each in large and mid-capstocks. The large cap stock universe consists of the first 100 companies in terms of market capitalisation, mid-caps of 101st – 250th and small caps251st company onwards. The category allows investors to diversifybetween two market caps.


Large cap exposure restricts downside


The large cap component of these funds helps restrict the downsiderisk. Large cap companies are well established and have bettervisibility on earnings growth. Resultantly, they are well tracked andconsidered stable compounders. They have the ability to managemarket volatility better than mid-cap stocks. The Nifty 100 TRI (largecap index) and Nifty largeMidcap 250 TRI (made up of 100 large capand 150 mid-cap stocks) has fallen less than the Nifty Midcap 150TRI in all the market downtrends.