Thinking of all companies listed on the public stock exchanges and investing in them, we often talk about their size. When choosing to invest in any asset or stock, we look at the market value and their valuation to compare between their values. In the financial markets, the listed companies are segmented depending on their market capitalization “cap”, It is a measure used by investors to classify stocks into small, medium and large-cap companies.
As for the mutual fund world, an investment fund composed of these large-cap companies becomes a large-cap mutual fund.
Let’s understand a bit more about these large-cap funds, investment considerations and what makes them a lucrative investment asset.
What are large-cap funds?
When we think of large-cap companies, it is more than just their brand image or physical
size. The market capitalization of a company largely depends on the company’s market
share value and the outstanding shares issued by the company.
Simply put, a mutual fund is a mix of different financial assets like stocks, bonds, debt
assets, cash, etc. As for a large-cap fund, you guessed it right, it would be composed of the financial assets of only large-cap companies.
What are the benefits of large-cap mutual funds?
All shares, whether of small or large-cap companies, are subject to market risks and macroeconomic factors. These factors be market sentiment, shift in industry trends, change in government policies etc. Luckily, with mutual funds, you can diversify your investments across different industries and companies, thus reducing your risk exposure.
Moreover, investing in large-cap companies gives you the stability and potential for greater returns, attributed to their established growth. Since large-scale companies are more resilient to market volatility, investors choose them as a safer investment. Additionally, these stocks have a higher liquidity, which allows investors to buy/sell their position with flexibility.
Additionally, some large-cap companies also pay out dividends, which is a great addition to the intrinsic returns on their stocks.
Investment considerations for investing in large-cap
The basic principles of investing in any mutual fund, or financial assets for that matter remain the same. From understanding your risk appetite and investment goals to assessing the past performance and industry outlook.
What differentiates large cap mutual fund from other funds is their risk profile and investment characteristics. Contrary to other funds and products, a large-cap mutual fund is more likely to have a stable (or less volatile) return. This means that while it may underperform other assets in a bullish market, it will have small drops in a bearish market. This means a more secure and reliable investment with a stable return and lower risk.
You can choose to invest in a variety of different asset classes and flavours of large-cap funds. Each of these funds may have a different composition of financial products, industry exposure, expense ratios and past performances. So, depending on your investment strategy and risk capacity, choose the one that fits your needs best. Whether you are looking for a stable return or have a positive outlook for large-cap companies, large-cap funds are great for long-term financial goals.