Best Large and Mid-Cap Funds to Invest in 2022

Investors today find it challenging to keep track of the best companies to invest in, given the vast quantities of companies with varying market capitalisations. Here, a large and mid-cap mutual fund can help you. 

Fund managers of such funds invest in the top 250 companies in the country so that you can reap the benefits of investing in both large-cap and mid-cap companies. Large and mid-cap funds can be ideal for investors who want to diversify their investment radar. 

List of Top Performing Large and Mid-cap Mutual Funds 

The top 10 large and mid-cap funds you should consider investing in are in the table below.The list is in descending order as per their 3-year annualised returns of the funds:

*Note: Returns data valid as of September 01, 2022.

What Are Large and Mid-cap Mutual Funds? 

Large and mid-cap mutual funds are open-ended equity mutual funds. They invest in a combination of stocks of large and mid-cap companies. These are usually the top 250 companies listed on the stock exchanges as per their market capitalisations. The market cap of a company is the total value of all of its shares. 

The top 100 companies are large-cap companies, and the rest are emerging or mid-cap companies with the potential to be the next leading companies in the country. Large and mid-cap funds blend the lesser risk associated with large-cap funds and the higher growth potential of mid-cap companies. 

How Do Large and Mid-cap Mutual Funds Work? 

As per SEBI’s regulations, large and mid-cap mutual funds have to invest a minimum of 35% of their assets in large-cap stocks and another 35% in mid-cap stocks. This gathers around 70% of your fund’s assets that are invested in stocks of the top 250 companies in the country. 

Due to the fund’s exposure to mid-cap stocks, the volatility is higher than pure large-cap stocks. But on the other hand, the amount invested in large-cap stocks might provide more stability to your fund than pure mid-cap funds. Such schemes mainly aim to take advantage of potential capital appreciation opportunities while diversifying the assets in the best companies.

Who Should Invest in Large and Mid-cap Mutual Funds?

There are various types of large and mid-cap funds. Some invest majorly in mid-cap stocks, while others invest their assets primarily in large-cap stocks. Investors aligning with  the following criteria may consider investing in large and mid-cap mutual funds: 

• Long-term capital growth: Investors with long-term investment goals such as retirement plans, buying a house, children’s education, etc., can consider investing in large and mid-cap funds. These funds require some time to optimise their return potential and generate a profitable return. Hence, investors with a long investment horizon might find these funds beneficial. 
• Risk-averse investment goal: There is no mutual fund that is entirely risk-free. Large and mid-cap funds typically carry lower levels of risk than pure mid-cap funds because their portfolios are diversified across varied market capitalisations. As a result, investors with a relatively low tolerance for risk may find these funds the best choice. 

Benefits of Investing in Large and Mid-cap Mutual Funds 

If you are an investor, you should know how you can benefit from investing in these funds. Here are a few significant advantages of investing in large and mid-cap funds: 

• Diverse portfolio: Large and mid-cap funds offer considerable portfolio diversification as they invest in stocks of companies with different market capitalisation. The fund managers allocate the assets to optimise the returns. 
• Growth and consistency: Large-cap companies are well-established companies with years of experience. Stocks of these companies have a high potential to offer moderate returns to their investors. Additionally, mid-cap funds are growing companies that  hold the ability to generate a higher return and faster growth than large-cap funds. Hence, you get both the benefits by investing in large & mid-cap funds. 
• Balanced risk: Investing in pure large-cap or mid-cap funds tend to be riskier as each focus on a limited market segment. When you invest in large & mid-cap funds, the risk gets balanced due to the diversification of the portfolio. 
• Cost of investment: Investing in one scheme which combines two types of funds saves you the investment costs, such as exit load and expense ratio. Instead of bearing costs for two funds, you pay for one without compromising  your investments. 

Things to Consider Before Investing in Large and Mid-cap Mutual Funds

Consider reviewing the following factors before you start investing in large & mid-cap mutual funds: 

• Fund’s performance: A mutual fund will always involve risk, and no fund can guarantee its future performance based on its past returns. However, what you should consider while choosing a fund is the consistency of its returns. You can review the fund’s performance for a minimum of 5 years. You might check if it has consistently outperformed its peers and benchmark indices. 
• Investment goal: Before investing, consider reviewing your investment goals. Make investments in funds that align with your financial goals. For example, large & mid-cap mutual funds tend to be ideal for investors with long-term investment goals. Hence, consider investing in them if you have financial plans for the long term. 
• Risk involved: Large and mid-cap mutual funds reduce risk but cannot completely eliminate it. At least 35% of the corpus is invested in mid-cap stocks that hold moderate to high risk in addition to a minimum of 35% of the corpus invested in large-cap stocks that involve comparatively low risk. 
• Expense ratio: The expense ratio is the operational and management costs incurred by the fund. The fund house charges this from the investors annually. You should consider checking the fund’s expense ratio before investing, which  can significantly affect your return. 

Taxation of Large and Mid-Cap Funds

Large and mid-cap funds are categorised as equity funds for tax purposes because they invest primarily in corporate stocks. How long mutual fund units are held affects how much tax is due. As shown in the table below, the tax rates are: 

Final Word 

Large & mid-cap funds hold the potential to give higher returns on your investment, protect your assets from high market volatility and provide stable growth. If you wish to spread your investments across companies of varied market capitalisations, consider investing in these funds. 

Frequently Asked Questions