Often, large-cap funds invest in medium-sized companies. It’s not a surprise to see schemes such as HDFC Top 200 (HT200) and Birla Sun Life Frontline Equity Fund (BFE) investing about 20-25% of their corpus in mid-cap scrips. Though in some months the allocation to such companies goes down, in general many large-cap schemes have some exposure to medium-sized companies.
Following the benchmark...
Large-cap-oriented schemes such as HT 200 follow their benchmark index closely. In the absence of a standard definition of what constitutes a large-cap or a mid-cap company, most mutual funds regard the top 100 companies by market capitalization as large-cap companies. As a result, indices such as BSE 200—a benchmark index to several large-cap-oriented schemes such as HT 200 and BFE—that consists of the 200 largest market capitalization companies will consist of companies regarded as mid-caps.
…or offer document
On the other hand, schemes that don’t refer to their benchmark indices to decide the stocks they would invest in, explicitly state in their offer documents as to what a large-cap scrip constitutes. For instance, Principal Large Cap Fund’s (PLC) offer document says that it will invest in scrips whose market capitalization is at least Rs750 crore (it internally restricts to Rs3,500 crore). But here, too, PLC says that it will invest in such scrips between 65% and 100% of its corpus. Rest, it says, can be invested in other scrips.
Difference of opinion
As a result of different definitions, sometimes there is a difference in the records of mutual fund tracking companies, such as Value Research (Mint Money uses Value Research’s raw data). For instance, as per data provided by Value Research, PLC holds about 80% of its corpus in large-cap scrips as per its December-end portfolio. However, PLC’s own fact sheet claims to hold 93.99% in large-cap scrips.
What should you do?
Read the scheme objective. If you do not mind your fund deviating slightly (but within regulatory limits) into mid-cap companies, then there’s not much of an issue. However if you feel strongly about sticking to the largest companies, then stick to equity schemes that invest only in, say, the 100 largest companies by market capitalization.