Large Cap vs Mid Cap Mutual Fund

When you decide to invest in Mutual Funds in India, you might come across terms like Large-cap and Mid-cap Funds. Think of these funds as different tools for your savings, like a big umbrella or a medium-sized umbrella. Each have their purpose and work best in specific situations.

In this blog we will discuss about Large-cap vs Mid-cap and explain why they can be good for your savings goals. This post will even point out some of India's best-performing Large-cap & Mid-cap Mutual Funds.

What are Large-cap and Mid-cap Funds in India?

Large-cap and Mid-cap Funds are categories of Mutual Funds that invest in stocks of companies with varying market capitalisations.

What are Large-cap Funds?

Large-cap Funds primarily invest in stocks of well-established, large companies listed on the stock exchange. These companies are typically market leaders in their respective sectors and are known for their stability. Large-cap Funds aim to provide steady returns over the long-term and are considered relatively less risky than the Mid-cap and Small-cap Funds. 

What are Mid-cap Funds?

Mid-cap Funds, on the other hand, invest in stocks of companies with medium-sized market capitalisations. These companies are often in a growth phase and have the potential to deliver higher returns than large-cap companies. However, they also come with a higher level of risk and volatility.

Investing in Mid-cap Funds in India can offer several advantages

Potential for higher returns

Mid-cap companies have the potential for rapid growth, which can result in higher returns for investors.

Diversification

Mid-cap Funds typically invest in a diversified portfolio of mid-sized companies, spreading the risk across various sectors.

Market leadership

Some mid-cap companies may become future market leaders and investing early can be rewarding.

Risk and reward balance

While Mid-cap Funds carry more risk than Large-cap Funds, they are less risky than Small-cap Funds, striking a balance between risk and potential reward.

Things to consider before investing in Mid-cap Funds in India

Before you invest in Mid-cap Funds in India, consider the following factors:

Risk tolerance

Evaluate your comfort with risk, as Mid-cap Funds tend to experience more price swings than Large-cap Funds, potentially impacting the returns unpredictably.

Investment horizon

Make sure your investment timeline associated with the mid-cap investments is for a longer period for optimal results.

Diversification

Verify that your investment mix spreads across various asset types to handle risks efficiently while balancing the potential gains.

Performance history

Investigate the fund's past performance and track record in providing reliable returns to make well-informed investment decisions.

Expense ratio

Analyse the cost structures of different Mid-cap Funds to reduce the expenses, helping you maximise your investment returns over time.

Things to consider before investing in Large-cap Funds in India

Here are some important things to know when you are investing in a large-cap fund in India:

1. Investment goal

The first thing to know is that these funds are ideal for long-term investment goals such as your retirement, your child’s marriage, or buying a house. Such funds also focus on stability and consistent growth rather than aggressive wealth creation.

2. Risk tolerance

The next important thing to know is risk tolerance. The large-cap funds come with lower risk compared to mid-cap or small-cap funds. Since they invest in well-established companies, the chances of major losses are reduced.

3. Return expectations

The returns in such fund categories are steady and moderate. You can expect steady returns annually. While the returns may not be as high as mid or small-cap funds, they offer more stability, which is valuable for long-term financial planning.

4. Fund performance

It is also important to know about the fund’s performance in the past. You must also look for consistency in returns across different market conditions. A fund that performs steadily, even during downturns, is usually a safer bet for long-term investors.

5. Fund Manager’s Track Record

The fund manager plays a critical role in selecting and managing the portfolio. A manager with a proven track record in managing large-cap funds can offer better risk-adjusted returns and make more informed investment decisions.

6. Expense ratio

Having a lower expense ratio indicates that more of your money stays invested. Remember to compare expense ratios across different large-cap funds because even a small difference can significantly impact your returns over the long term.

Top 5 performing Large-cap & Mid-cap Mutual Funds in India

Let us take a look at some of the top performing Large-cap & Mid-cap Mutual Funds in the Indian market based on their returns in the last 3 and 5 years: 

ICICI Prudential Large & Mid Cap Fund Direct Plan-Growth

In the last 3 years, it offered a return of 28.49%. Over the period of 5 years, it offered a return of 19.10%. 

Quant Large and Mid Cap Fund Direct-Growth

In the last 3 years, it offered a return of 29.50%. Over the period of 5 years, it offered a return of 21.18%.

HDFC Large and Mid Cap Fund Direct-Growth

In the last 3 years, it offered a return of 29.16% Over the period of 5 years, it offered a return of 19.63%.

Motilal Oswal Large and Mid Cap Fund Direct-Growth

In the last 3 years, it offered a return of 27.30%.

Mahindra Manulife Large & Mid Cap Fund Direct-Growth

In the last 3 years, it offered a return of 26.96%.

Please note that the past performance is not indicative of future results and it is essential to conduct thorough research and consider your financial goals before making any investment decisions.

Differences Between Large Cap Funds and Mid Cap Funds

Below are the major points of difference between small cap and large cap funds:

Risks associated with Mid-cap Funds & Large Cap Funds in India

While Mid-cap Funds in India offer the potential for higher returns, they also come with specific risks that investors should be aware of:

Market volatility

Mid-cap Stocks can be more volatile than Large-cap Stocks, which means that their prices can fluctuate significantly in a short period. This volatility can result in higher risks for investors, especially during the market downturns.

Liquidity risk

Mid-cap Stocks may not be as liquid as Large-cap Stocks, making it harder to buy or sell them quickly, particularly during a market turmoil.

Business risk

Mid-cap companies are often in a growth phase and their business models may be less established as compared to the large-cap companies. This can make them more vulnerable to economic downturns or industry specific challenges.

Limited track record

Some mid-cap companies may lack a long track record of consistent performance, making it challenging for investors to assess their future prospects.

Sector concentration

Mid-cap Funds may have a higher concentration of stocks from specific sectors or industries, which can amplify risk if those sectors face challenges.

It is crucial for investors of Mid-cap Funds to have a clear understanding of these risks and to align their investment strategies accordingly.

Choosing between Large-cap and Mid-cap Mutual Funds depends on your risk tolerance, investment horizon and financial goals. Always consider the Large-cap vs Mid-cap factors before investing. Large-cap Funds offer stability, while Mid-cap Funds offer growth potential with higher risks. Carefully evaluate your options and consult with a financial advisor before making any investment decisions. Diversification across different asset classes and regular portfolio reviews are essential for long-term financial success.