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Introduction of Large-cap Mutual Fund
Large-cap Funds meaning: These Mutual Funds are Equity related Mutual Funds that invest in the top 100 companies in terms of market capitalization which are well diversified and invest across sectors.
What is a Large-cap Mutual Fund
As per SEBI guidelines, a Large-cap Mutual Fund invests in the top 100 companies by market capitalization, as per the list published by SEBI. At least 80% of a Large-cap Fund’s assets under management (AUM) needs to be invested in equity or equity-related investments of Large-cap companies. Large-cap companies are established ones with proven track records and stable earnings. Thus, the risk of investment is comparatively lower when you are investing in Large-cap Mutual Funds as compared to Mid-cap and Small-cap.
How do Large-cap Mutual Funds Work
The fund managers of Large-cap Mutual Funds select stocks out of the top 100 companies as per market capitalization. As these companies are mature or established companies, they are highly stable and expected to keep growing in line with the economic growth of the country. So, the fund managers choose stocks that can perform better and provide returns, and with the power of compounding the value of your investment grows over time.
Features of Large-cap Funds
The features of Large-cap Mutual Funds are –
● Stability in returns: Since Large-cap Funds need to invest 4/5th of their AUM in Large-cap stocks, such companies are comparatively more stable. This is due to the fact that these companies are well established. If you are looking for long-term investment, then these funds are one of the best options for you.
● Limited downside risk: The next important feature of Large-cap Funds is the risk that they carry. They possess lower downside risk as the companies that they invest in are mature companies. They are less affected by market fluctuation. Such companies also recover faster from any external adverse event, thereby reducing the risk in the long term.
● Liquidity: Large-cap stocks are one of the most liquid stocks that you can find on the stock exchanges as they are traded the most. Hence, the liquidity quotient is very high for these stocks Investors can enter and exit Large-cap Funds at any time, and withdrawal proceeds are available in their bank accounts within 3 working days according to prevailing market rates and exit load.
Who Should Invest in Large-cap Mutual Funds
Large-cap Funds are suitable for those:
- Who are looking for stable returns.
- Who are seeking diversification in their investments.
- Who are seeking investment options for long-term for meeting their financial goals.
- Who prefer moderate to high risk investments and can tolerate volatility in the market.
- Who desire equity allocation in their overall portfolio.
What is the Minimum Amount Required for Investing in Large-Cap Funds
The minimum amount that you would require to start investing in Large-cap Mutual Funds can be as low as Rs. 100. However, the minimum investment depends on the scheme you are choosing. A systematic Investment Plan (SIP) is one of the best ways to invest as you can make a monthly investment and the money gets deducted from your bank account automatically with your permission.
Tax implications on Large-Cap Funds
The tax implication on Large-cap Mutual Funds are given below:
If you redeem your investment in a Large-cap Fund before completing 12 months from the date of purchase, then your profits will be categorized as short-term capital gains and will be taxed at a flat rate of 15%.
On the other hand, if you’re taking profits after one year from the date of purchase, your profits will fall under long-term capital gains. In a financial year, if your long-term capital gains do not exceed Rs. 1 Lakh, then you’re eligible to get a tax exemption, and if it exceeds that, then the excess amount will be taxed at 10% without indexation.
Suppose you made a long-term capital gain of Rs. 1.50 Lakhs from an Equity Mutual Fund in a financial year. Here, Rs. 1 Lakh will be exempted from income tax and the remaining Rs. 50,000 will be taxed at 10%.
Things to Consider Before Investing in Large-Cap Funds
● Duration of investment: Large-cap Mutual Funds provide stable returns over the long term. Thus if you are looking for long-term capital appreciation, then Large-cap Funds are good for you. You need to at least stay invested for 5 years to 10 years for getting good returns out of Large-cap Mutual Funds.
● Expense ratio: Mutual fund houses charge a fee for rendering services which is the expense ratio of investing in any scheme. This is the cost that you incur for letting experts manage your funds.
● Returns: The returns could be volatile due to market fluctuations. You need to hold the funds for a long period to achieve your desired financial goal.
How to Invest in Large-cap Equity Funds Through Nivesh
Any investor can enjoy the benefits of investing through Nivesh in the following easy steps:
- Create an account in Nivesh by providing your basic KYC details. (If you already have an account then just login into your account)
- On your portfolio page click on the Buy New tab at the right top corner of the screen.
- Select the category and choose the funds you want to purchase.
- If you already know the name of the fund to buy, then you can search the particular fund through Quick Order.
- Fill the transaction details and confirm. You can place up to 5 orders in one go.
- You can make payment through your registered account through UPI, Direct Pay, or NEFT/ RTGS , Bank Mandate or Cheque. For same-day NAV, select UPI, Direct Pay or NEFT / RTGS as other payment options may take a few days to clear, Nodal account takes about 1-2 days to clear payment from the approved mandate and cheque takes about 2-5 days in clearing due to which you will not get the same-day NAV.
Frequently Asked Questions (FAQs)
1. Is it Safe to Invest in a Large-cap Fund?
The management of the Mutual Fund industry is safe due to high regulations, however, returns are dependent on the prevailing market conditions
2. What is the Minimum Amount to Invest in Large-cap Funds?
The minimum investment for Large-cap Funds depends on the scheme you are choosing. You can even invest Rs. 100 through SIP in Large-cap Funds. For lump sum investment, you can choose any amount to invest. There is no maximum limit on the investment as well.
3. Can we Redeem Large-cap Funds Anytime?
There is no lock-in period for the open-ended Large-cap Funds. You can redeem the fund anytime you want within market timings. Also, you will need to consider exit loads before withdrawing your funds.
4. Is There any Tax on Large-cap Funds?
Yes, the profits from Large-cap funds are taxable. If you sell the funds within a year, then you have to pay short-term capital gain taxes, which is 15% of the gain. While if you sell them to post one year of investment, then you have to pay long-term capital gain taxes. Long-term gain on profits made which are above Rs. 1 Lakh per annum is taxable at the rate of 10% of the gain.
