Considering investing in MFs? 9 best large and mid-cap mutual funds to invest in

Diversification: By investing in a mix of large-cap and mid-cap stocks, these funds effectively mitigate risk through diversification.

Growth potential: Over the long term, such mutual funds have the potential to yield higher returns compared to other types of mutual funds, taking advantage of the growth prospects of mid-cap stocks.

Stability: The inclusion of large-cap stocks in the portfolio adds a layer of stability to these types of funds, making them more resilient than pure mid-cap funds.

Tax efficiency: Investors can benefit from tax efficiency, as the long-term capital gains from these mutual funds are taxed at a lower rate than the short-term capital gains.

Does investing in large and mid-cap mutual funds help?

As per SEBI regulations, large and mid-cap mutual funds must designate at least 35 percent of their assets to equity instruments and equity-related instruments of large-cap and mid-cap companies, respectively. Essentially, this requirement means that these funds have to invest at least 70 percent of their assets in the top 250 companies based on market capitalization.

The purpose of this requirement is to maintain the authenticity of large and mid-cap mutual funds, ensuring that investors get exposure to the best companies in the market. Additionally, this guideline serves to mitigate risk by targeting companies that are typically more established and have a longer track record.

The rest can be directed to alternative instruments, including debt securities and money market instruments. This adaptability empowers fund managers to fine-tune the fund’s risk profile and asset allocation according to current conditions.

Measured by fund performance

Historical market data shows significant variations in the performance of large-cap and mid-cap funds over different periods. This discrepancy can be attributed to the more traditional and longer track record of large-cap funds, in contrast to the higher volatility and potential for greater growth associated with mid-caps.

The performance of these funds is clear from the statistics shared in the following illustration.

By strategically allocating investments between large-cap and mid-cap stocks, investors minimize risk and improve the likelihood of achieving better long-term returns. The rationale behind this approach is the potential for one market segment to outperform when the other lags, effectively mitigating losses. This dynamic contributes to the sustained and reliable performance of these funds over long periods, over a period of ten years or more.

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Updated: 16 November 2023, 03:54 PM IST