Mutual Funds: Are large-cap funds still the best bet?

In March 2024, small-cap funds faced outflows due to investor caution, but saw a resurgence in April with a substantial inflow of 2,208 crore, easing concerns about their fortunes, according to the AMFI

Abeer Ray
First Published17 Jun 2024, 11:36 AM IST
These are thematic mutual funds which invest in those entities which have demonstrable commitment to environment, social causes and governance,
These are thematic mutual funds which invest in those entities which have demonstrable commitment to environment, social causes and governance,

In March 2024, there was a noteworthy shift in small-cap funds as they experienced a net outflow for the first time in over two years, reflecting investor caution. This could be attributed to worries about elevated valuations or the potential for a broader market downturn. However, the tide turned in April, marked by a substantial net inflow, indicating a resurgence in investor trust in small-cap stocks. The remarkable comeback of small-cap funds, with a net inflow of 2,208 crore, alleviated concerns about a reversal in their fortunes.

Decreased inflows into large-cap funds prompt inquiries

The sudden love for small-cap and thematic funds highlights investors’ love for volatility despite so many large-cap funds performing with the same gusto. The meagre inflow into large-cap funds is a tale-tell sign of how investors continue to embrace unwanted risk when they could create wealth with large-cap funds known for their inherent stability, diversification, continued growth, and high liquidity.

Given the prevailing market volatility, large-cap mutual funds stand out as a compelling option for investors in the mutual fund arena. According to the Association of Mutual Funds in India (AMFI), large-cap companies represent the top 100 firms based on market capitalization. These companies are typically characterized by robust fundamentals, rendering them better equipped to withstand market fluctuations compared to medium and small-cap counterparts.

Why rely on large-cap fund investments?

For the unversed, large-cap funds allocate their investments into stocks issued by the most prominent and long-standing companies within a nation. These enterprises are usually widely recognized brands with a track record of sustained success. Due to their substantial market presence and robust stability, large-cap stocks are commonly perceived as less volatile compared to those of smaller firms.

An assessment of the returns from large-cap funds reveals how so many funds continued to earn 14-16 per cent returns despite recurring market lows and investors’ fleeing the market in hordes, albeit for short periods.

The following table illustrates how some large-cap funds have indeed helped investors create wealth sans critics’ constant love for small-cap stocks and funds.

Name of the fund

10-year returns 

(in %)

SIP investments 

(in Rs)

Investment tenure 

(in years)

Invested amount 

(in Rs)

Estimated returns 

(in Rs)

Total value of returns 

(in Rs)

Nippon India Large Cap Fund

17.05

10,000

10

12,00,000

19,66,306

31,66,306

Baroda BNP Paribas Large Cap Fund

16.44

10,000

10

12,00,000

18,47,310

30,47,310

Invesco India Largecap Fund

16.37

10,000

10

12,00,000

18,33,991

30,33,991

ICICI Prudential Bluechip Fund

16.10

10,000

10

12,00,000

17,83,254

29,83,254

Mirae Asset Large Cap Fund

16.00

10,000

10

12,00,000

17,64,715

29,64,715

Source: AMFI (As of June 14, 2024)

Many investors regard large-cap mutual funds as a favorable equity fund option due to their resilience against market fluctuations. Achieving the optimal balance between substantial returns and stability in market-linked investment schemes can be challenging. However, including one or more large-cap funds in an investment portfolio can certainly contribute to achieving this balance.

 

 

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First Published:17 Jun 2024, 11:36 AM IST
HomeMutual FundsMutual Funds: Are large-cap funds still the best bet?

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