Equity Mutual Fund schemes are among the best investment options for any investor with a long-term vision.
Such schemes offer returns that have the potential to comfortably beat inflation in the long run, and also outperform traditional investment options such as small savings.
There are various types of equity schemes with different level of risk attached. Since the underlying securities of equity schemes are stocks, there are market risks associated with them. However, with greater risks come greater rewards.
Among the category of equity schemes, large-cap schemes or funds are generally considered as the flavour for all seasons. Though they don’t typically offer you the highest returns compared to some other equity schemes, large-cap funds are reliable and relatively less risky. This is because large-cap funds aim to invest in India’s largest companies.
Below are a few reasons on why you can consider large-cap funds to create wealth.
They Invest In Big Companies
As the name large-cap suggests, such equity schemes invest in the biggest companies of different sectors by market capitalisation. This way, the portfolio of large-cap funds have exposure to the best and established companies. Such a composition of portfolio of large-cap schemes makes the investment relatively safer compared with other categories in the equity segment.
Since the underlying securities of large-cap schemes are the top companies, the number of investors chasing such counters are significantly higher. This helps make the stocks in the portfolio highly liquid. But even when you invest in an open-ended mutual fund, your investment is highly liquid. It can be liquidated partially or completely at any point.
Corporate Governance Assures Higher Capital Safety
Large-cap schemes offer investors a taste of highly professionally managed companies with the highest standards of corporate governance. Their ability to prevent any wrong-doing in the company – such as being able to quickly recognize fraud — makes them a desired destination for investment. A set of internal practices takes care of interests of all shareholders and clearly defines their rights and responsibilities. Generally, large companies – which are industry leaders in their respective sectors – are quite strong in terms of corporate governance. This assures investors that their money is in reliable hands.
In terms of price fluctuation, large-cap schemes are less volatile compared to mid-cap and small-cap equity investments. Since shares of large companies are owned by a wide set of investors, chances of share price manipulation are limited. Also, the large equity base (large number of outstanding shares) of such companies brings in a relative stability in the price thereby making them less volatile. Knee-jerk dips in the value of investments in large-cap schemes, hence, are relatively fewer.
Ability To Fight Tough Times
Markets rise and fall every day. But the relative stability of large-cap mutual fund schemes offers comfort to investors during periods of volatility. As a crisis period passes and another period of growth begins, such schemes usually emerge having created great value for investors.
Large companies tend to generally do better in dealing during tough times. Their long-term experience in business, highly skilled and professional management, brand connectivity with consumers and importantly their ability to manage liquidity (cash balance) differentiates large companies from the crowd. Thus, large-cap funds can be a good option for investors who are entering mutual funds for the first time.