Large and mid-cap mutual funds allocate a significant portion of their investments to both large and mid-sized companies. According to SEBI regulations, these open-ended equity schemes must invest at least 35% of their total assets in large-cap stocks and another 35% in mid-cap stocks.
However, this broad definition does not fully capture the nuances of large and mid-cap funds. The required 35% allocation to mid-cap stocks makes these funds riskier than pure large-cap schemes but relatively safer than mid-cap-focused funds, which typically invest around 65% in mid-cap stocks. The large-cap component provides some stability, but the funds remain more volatile than pure large-cap schemes. The remaining 30% of the corpus is left to the discretion of the fund manager, who may allocate it to large, mid, or even small-cap stocks based on market conditions and investment strategies. This flexibility can either mitigate or amplify the fund’s overall risk.
For investors who find this structure complex, the key takeaway is that these funds are best suited for those with an aggressive investment approach who are comfortable with mid-cap exposure. Depending on market conditions and the fund manager’s outlook, the fund may have a heavier tilt toward either large or mid-cap stocks. Therefore, these schemes are ideal only for investors who are willing to accept additional risk for potentially higher returns.
Historically, before SEBI introduced fund categorization, most equity mutual funds primarily invested in large and mid-cap stocks. During bull markets, many funds allocated a larger portion to mid-cap stocks, with some even venturing into small-cap investments. Financial advisors believe that over time, these schemes will develop distinct inclinations, with some leaning more toward large-cap stocks while others favor mid-cap stocks. This evolution will allow investors to make more informed choices based on their individual risk tolerance. Those seeking greater stability should opt for funds with a large-cap bias, while aggressive investors may prefer funds more focused on mid-cap stocks.
For investors with a long-term horizon and a higher risk appetite, we have compiled a list of recommended large and mid-cap schemes. However, before presenting these recommendations, here are some key performance updates on select funds:
Axis Growth Opportunities Fund has moved from the fourth quartile to the third quartile over the past two months.
Canara Robeco Emerging Equities Fund has remained in the third quartile for the past 11 months, after previously being in the fourth quartile for six months.
Sundaram Large & Mid Cap Fund recently improved to the third quartile after previously being in the fourth quartile.
Mirae Asset Emerging Bluechip Fund has been in the fourth quartile for the past 11 months.
We will continue monitoring the performance of these recommended schemes and provide updates on their rankings each month.
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