It is a truism that the right investment decisions taken at the right time augurs well for investors and it is also a proven fact that good investments provide the foundation for long term financial stability. However, choosing the right investment option from the financial market is easier said than done.
Myriad products like Large Cap Mutual Funds, PPF, gold ETF etc are all good investment options with endless possibilities. The key to that perfect investment portfolio is about deciding the investment objective and knowing the products.
Understanding the Large Cap Mutual Funds
The stock market is volatile in nature to say the least and to the general masses the mysteries of the market may not always be decipherable.
Mutual funds on the other hand are conservative investment options as they invest a pool of money from investors into stocks or bonds thus allowing every investor to own a portion of different securities by subscribing to the fund.
Large Cap Mutual Funds opens the door to a relatively cautious investment avenue for beginner equity investors.
What are Large Cap Mutual Funds?
The financial term ‘Market Capitalization’ refers to the product of price per share and the number of shares outstanding for a company.
Large Cap refers to the magnitude of company’s value in the stock market. As against large cap, medium and small cap companies have a lower level of market capitalization.
The larger the size of capitalization the less risky it is to invest in the company. Large Cap Mutual Funds are thus made up of shares from companies with a large capitalization base.
What prospects do Large Cap Mutual Funds Offer?
Large Blue Chip companies are financially strong and Large-cap mutual funds invest in such companies even though their shares are priced higher. The high price in fact is a cost towards the stability that the shares offer.
Those investors who look for long term capital appreciation find Large Cap Mutual Funds to be the ideal option for investment. The return on the large cap mutual fund may be moderate to low but they are more likely to be stable over a period of time.
The chance that the corpus of the investor will get eroded is low in large cap mutual funds when compared to the midcaps and small caps.
Big companies are in a better position to withstand the economic recessions and recover faster after the market fall. The major advantages of Large-cap mutual funds are moderate returns with low risk.
Benchmark for Large Capitalization Firms
Large Cap Mutual Funds are invested in companies which have market capitalization worth of more than rupees 10,000 crores. Most of these companies have sound financials and have low ‘debt: equity’ ratio. Many of these companies are listed in the BSE 100 index.
Large cap companies are there in the industry for a very long period of time. They are strongly established and built economic resilience over a period of time.
Large Cap Mutual Funds and their advantages
- “Slow and steady” are known to win the race but Large Cap Mutual funds are “low and steady” meaning that their risk is low as compared to the medium and small cap funds but their overall returns and growth prospects make them a steady investment option.
- Mid cap and small cap funds are more volatile than the Large-cap mutual funds. The prospect of large Cap funds can also be predicted to certain extent.
- The risk factor is thus minimized and even though in Mutual Funds historical performance is not an indicator of future performance and prospects, the overall performance of the large cap mutual funds provide a stable base.
Large-cap mutual funds can be opted for at any time of the year. Investors who plan to invest for a long term and expect a reasonable return with overall stability need not look beyond Large-cap mutual funds.
To take the right investment decisions during the market down and up, we need to have very clear guidelines for making financial decisions. To have very clear financial guidelines, one should have a sound financial plan. To create a sound financial plan, I strongly recommend you to take advantage of our