How Equity Large Cap Mutual Funds Works

How Equity Large Cap Mutual Funds Works

Large Cap funds are the funds that invest primarily in the top 100 companies in India as defined by their market capitalization. These companies are some of the biggest brands in India, like Reliance, Britannia ITC, HUL, and more. They are known to have a high reputation in the market. As per regulation, large-cap funds need to invest at least 80% of their assets in these 100 companies.

With Large Cap funds, you can be assured that you are investing in companies that have an excellent track record of performing well in the medium to long term horizon. Due to this, large-cap funds are not as volatile as mid-cap and small-cap funds.

Who Should Invest in Large Cap Funds

  • Investors Who Want To Own India's Top Companies: Large Cap companies are proven market leaders with successful business models. These are typically reputable, trustworthy, and well established companies in the market. So when you invest in a Large Cap Fund, you become a part-owner in several top companies in India.
  • Investors Looking For Relatively Less Volatile Returns: Large cap Funds invest in well-established and frontline companies across different sectors.These companies have robust and resilient business models, considerable market share, solid supply chains, etc. So the large cap companies are better placed to withstand market corrections and challenging economic conditions as compared to mid cap or small cap companies.Thus, Large Cap Funds are suitable for you if you want to profit from the growth in equity, but don't want to witness too much volatility.
  • Investors Who Want A Solid Core Portfolio: You can have Large Cap Funds as the core part of your portfolio. While these funds will offer slightly less returns than smaller companies during market rallies, they can still offer double-digit returns with relatively less fluctuations

Taxation on Large Cap Funds:

Large Cap funds receive the same tax treatment as other equity assets. Capital gains earned on the holding period of less than a year are classified as short-term capital gains (STCG). These attract 15% tax.

On the other hand, gains made on investments held for more than a year are tagged as long-term capital gains (LTCG). According to the prevailing tax rate, there is no tax on LTCG till 1 lakh in a financial year. The amount exceeding this limit is taxed at 10% without indexation advantage.