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Business News/ Mutual Funds / Should you invest in the newly launched PGIM India and Bajaj Finserv Large and Midcap funds? 3 experts answer
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Should you invest in the newly launched PGIM India and Bajaj Finserv Large and Midcap funds? 3 experts answer

PGIM India Mutual Fund and Bajaj Finserv Mutual Fund have introduced their respective Large & Midcap Funds, following a trend of other asset management companies launching similar funds. These funds provide a combination of stability and growth potential by investing in both large & mid-cap stocks.

Should you invest in new fund offers?Premium
Should you invest in new fund offers?

In its latest fund offerings, PGIM India Mutual Fund has introduced the PGIM India Large and Midcap Fund. In a more recent development, Bajaj Finserv Mutual Fund introduced its latest offering, the Bajaj Finserv Large and Midcap Fund, on February 6, 2024. The new fund offerings follow a trend where various asset management companies have previously launched funds in this category. Before this, several mutual fund houses had introduced similar funds, providing investors with the opportunity to invest in them and reap the associated benefits.

Understanding large and midcap funds

For those unfamiliar, large and midcap funds represent a category of mutual funds that allocate investments across both large-capitalization (large-cap) and mid-capitalization (mid-cap) stocks. These funds provide a blend of the stability associated with large-cap stocks and the growth potential inherent in mid-cap stocks. SEBI regulations require that large and midcap funds allocate a minimum of 35% to both large-cap and mid-cap stocks. This regulation provides a nuanced perspective on the composition of these funds.

Priyadarshini Moreshwar Mulye, a SEBI-registered Investment Advisor and Founder, ARTHA FinPlan, shared, “Many investors prefer large & mid cap funds considering the return potential they offer from the risk spread between large & mid cap category stocks. Being in the equity category, their performance is volatile but if the investor has a good understanding of it, has a suitable risk appetite, goal, and investment tenure of more than five or six years, then one can choose the same."

Suresh Sadagopan, Principal Officer, Ladder7 Wealth Planners, said, “The outlook for India in the foreseeable future is bright. Hence investing in equity funds makes sense with a long-term orientation. We invest client money in equity-diversified funds with large-cap bias; we also suggest market funds like Nifty 500 funds and flexicap funds. Sometimes, we also suggest midcap or other candidates based on specific client asset allocation requirements."

Why invest in these funds?

Allocating funds to this category establishes a stable foundation, particularly during market downturns when the typically lower volatility of large-cap stocks contrasts with their smaller counterparts. The remaining 35% designated for mid-cap stocks provides the fund with added strength. Although midcap companies offer the potential for higher returns, they also come with increased risk. Nevertheless, the mandate permits managers to strategically choose stocks across diverse sectors, guided by their analysis and outlook.

Although much can be discussed and written about the advantages and disadvantages of investing in this fund category, many investors are particularly interested in determining whether it is advisable to allocate a portion of their earnings to the recently introduced PGIM India Large and Midcap Fund and Bajaj Finserv Large and Midcap Fund. This curiosity stems from the notable high returns that numerous funds in this category have delivered thus far.

The table below presents several funds in this category along with their returns over the past five years. This allows investors to assess whether incorporating any of these funds into their investment portfolios would assist them in achieving their financial objectives within the desired timeframe.

Name of the fund

10-year returns (in %)

Mirae Asset Large & Midcap Fund

24.98

Quant Large and Mid Cap Fund

24.33

SBI Large & Midcap Fund

19.25

Invesco India Large & Mid Cap Fund

19.00

Edelweiss Large and Mid Cap Fund

19.00

Sundaram Large and Mid Cap Fund

18.74

Bandhan Core Equity Fund

18.57

Tata Large & Mid Cap Fund

18.51

ICICI Prudential Large & Mid Cap Fund

18.25

UTI Large & Mid Cap Fund

16.67

Bank of India Large & Mid Cap Equity Fund

16.45

HDFC Large and Mid Cap Fund

16.02

Source: AMFI (As of February 06, 2024)

A caveat for the overtly optimistic

Investing in this category naturally promotes diversification across market capitalizations, lowering the overall portfolio risk in comparison to purely large-cap or mid-cap funds. Investors acquire exposure to the growth potential of mid-cap stocks while retaining a stability buffer through the allocation to large-cap stocks, aiming for an optimal balance between risk and return. The flexibility inherent in the mandate underscores the significance of fund manager expertise. The manager's ability to identify promising mid-cap companies and effectively manage the overall portfolio composition significantly influences the fund's performance.

Nevertheless, not all market experts are inclined to embrace the risk. Some have issued warnings in light of persistent market fluctuations and elevated valuations within the mid-cap and small-cap categories.

Preeti Zende, a Sebi-registered investment advisor and founder of Apna Dhan Financial Services added, “The market is at a higher level but still the current market level is volatile. In such cases, investors are confused about where to invest. In the current scenario when there is uncertainty about the global scenario as well as big events around the corner it is prudent to stick with large-cap/Nifty 50 index funds. These funds invest in the top 50 stocks where stability is more feasible. Mid and small caps are already heated and valuations are also very high so correction is in the corner. That's why better to stick with the large cap to maintain sustainability in the portfolio."

D Muthukrishnan, a Chennai-based certified financial planner fully concurs with what Zende said. Muthukrishnan adds, “We are in a strong bull market. No one knows when the next bear market or a steep correction may occur. It is wiser now to invest in flexicap funds, preferably through the SIP route and not a lump sum. Flexicap funds are go-anywhere funds and are significantly both sector and cap-agnostic. This would relatively limit your downside if something goes wrong. If all continues to go well, the upside too would be decent."

Should you invest in new fund offers?

Investors often grapple with indecision when considering investing in new fund offers (NFOs). Primarily, the absence of historical performance makes it challenging to assess how these funds might perform in the future. There is a potential that not all funds meet benchmark criteria. Making decisions based on past performance entails evaluating how funds have performed previously and then assessing their credibility accordingly. 

Investing in NFOs is not inherently problematic, except for the uncertainty regarding potential gains or losses in the long run. Unlike the impulsive bets made by some contemporary investors without considering the consequences of unplanned investments, it would be beneficial to carefully choose between existing investments by evaluating their past performance and other relevant factors.

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Published: 07 Feb 2024, 11:36 AM IST
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