When it comes to building an investment portfolio from mutual funds, the possibilities are endless. Some investors follow a high-risk/high-returns strategy, while others look for stability, a regular income, and a diversified portfolio. For investors that fall in the second category and seek a balance of steady returns along with minimal risk of volatility, large-cap funds can be the ideal investments to make.
Here is a breakdown of the features and benefits that all investors should know about before deciding on large-cap funds.
Explaining large-cap mutual funds and their features
A large-cap mutual fund is a type of equity fund that focuses on investments in companies with large market capitalisations – generally, the top 100 companies listed on a stock exchange by market value.
These companies (also referred to as “blue chip”) are typically well-established, financially sound, and have a strong reputation and brand presence with quality stocks. Due to their size and structural organisation, large-cap companies generally follow strict corporate governance protocols, which further provide investors with more security in terms of investments.
Also, since these organisations generally dominate their respective industries, there is plenty of research available regarding them, which can be an invaluable tool when making investing decisions.
Four top benefits of investing in a large-cap mutual fund
- Fuel long-term goals
As an investor, large-cap mutual funds can be a great way to help achieve long-term goals. These funds have the resilience and stability necessary to provide consistent returns over time, which further helps to confidently plan for retirement, save for children’s college, build wealth, or achieve any other significant long-term aspirations. Moreover, if investors remain invested in a large-cap fund for the long term, the possibility exists that market appreciation may boost their overall return.
- Steady wealth creation through dividends and bonus shares
Large-cap mutual funds also help create steady wealth over time due to their stability and slow but steady appreciation potential. These funds often pay regular dividends, providing investors with an additional income stream. Large-cap funds also often issue bonus shares (where a company issues additional shares to existing shareholders at no extra cost). This means investors can own more shares in the company, thereby increasing the value of their investment portfolio.
- Low volatility and stable growth
When investors invest in large-cap mutual funds, they get the opportunity to build a stable and long-term portfolio with minimal market risk exposure. They invest in larger companies with more diversified operations and products, strong fundamentals, and large distribution networks, due to which they are less susceptible to sudden fluctuations in value over the short term.
- Diversification
A large-cap fund gives exposure to different companies with high capital value, providing an additional layer of protection. This diversification helps protect investor portfolios since any unexpected losses from any particular company or sector can be offset by other companies making up that large-cap fund.
Final words
With the potential to earn inflation-beating returns, low risk, and high liquidity as its key features, a large-cap fund can be a worthwhile investment for investors with a long-term approach.
Moreover, a Systematic Investment Plan (SIP) offers an easy way to invest in large-cap funds and earn a steady profit over time through disciplined investment and rupee-cost average benefit. However, to ensure the desired outcomes, it is advisable to use an online SIP calculator to calculate return projections and compare different SIP plans to select the right one.