Large Cap companies are well-established entities with a solid reputation and history. They have a reliable business structure that inspires confidence. Based on market size, there are three primary kinds of equity mutual funds in which one can invest: large-cap, mid-cap, and small-cap. The top 100 companies by market capitalisation are categorized as Large Cap.
The Securities and Exchange Board of India (SEBI) has created standards and clear lines of demarcation between each of the three categories, and its reclassification specifies all the modifications made to various investment funds.
What Are Large-Cap Mutual Funds?
Large Cap Mutual Funds invest a greater proportion of their assets in large market capitalization companies. These are reputable companies with a proven track record of money creation. Large Cap Funds pay consistent dividends for their investors over the long term. This contributes to the consistent growth of an investor’s wealth. Compared to small-cap and mid-cap funds, these funds are low-risk. Therefore, investors with a low-risk tolerance can profit from these funds’ more stable returns. Consequently, these have a long-term investment horizon.
These funds invest a greater proportion of their assets under management (AUM) in market leaders. Consequently, these funds are regarded as less risky investments. You can anticipate consistent profits on your investment over the medium to long term. If you are a risk-averse investor, large-cap funds present your portfolio with less risk. However, you should be aware that the risk is only marginally lower compared to small- and mid-cap funds.
Large Cap Mutual Funds invest a substantial part (about 80%) of their capital in large-cap companies. These businesses have a market capitalization of more than 20,000 Crores. These companies are readily identifiable as market leaders in their respective industrial areas. They have a strong position in the market, which is why they are known for its robust growth and huge earnings. These companies offer superior capital appreciation, consistent compounding, and consistent dividends to investors.
What Are Blue Chip Funds?
A blue-chip fund invests in stocks/shares of well-established companies with solid track records of financial performance, including, among other criteria, consistent history of dividend payments and profitability.
Financially speaking, a blue chip is a well-known company that requires little introduction. It provides generally approved products/services that command market value. This is reflected in the company’s sales, profitability, and dividends, among other financial metrics.
How Does It Work?
Blue chips derive their name from the highest-valued poker chips, which are blue.
Bluechip companies can withstand economic downturns more effectively than their lesser-known competitors. Despite unfavourable market conditions, they are able to run financially or at least better than average. This contributes to their history of expansion and stability. To put it simply, blue chips are ‘reliable’ investments.
Due to the aforementioned factors, blue chip stocks are typically less volatile than lesser-known companies. Investors favour blue chip companies because they are known to give portfolio stability. Typically, the stock price of a blue chip business follows the overall market and is expected to fluctuate within the same range. This is because the broad market indices are composed of blue-chip stocks. Blue chip funds of both ULIPs and mutual funds are created to provide investors with the possibility to profit from the financial growth of blue chip firms.
While these funds are predominantly invested in blue chips, they may have a diversification provision that allows them to invest in mid-caps, bonds, or cash.
Advantages of investing in Blue Chip Funds
- Diversification across multiple sectors
Large-cap funds often invest in a diversified portfolio of blue-chip stocks for the long term, and fund managers continually analyse the performance of the funds.
- High liquidity
Large-cap stocks are renowned for their ability to withstand volatile market conditions while providing ample liquidity on demand.
- Improved capital growth
Since large-cap funds invest in companies with a reputation for exceptional commercial and financial success, these funds typically provide long-term growth.
Axis Blue Chip Funds
Axis Bluechip Fund Direct Plan-Growth is a Large Cap mutual fund. This fund has existed for nine years and eight months, having been established on January 1, 2013. As of 30 June 2022, Axis Bluechip Fund Direct Plan-Growth has 36,980 Crores in assets under management (AUM) and is a medium-sized fund within its category. The fund’s expense ratio of 0.52% is greater than that of the majority of other Large Cap funds.
One-year returns for the Axis Bluechip Fund Direct Plan-Growth have been -3.15 per cent. Since its inception, it has generated average yearly returns of 15.61 per cent. Every five years, the fund has doubled the money invested in it.
- The ability of the Axis Bluechip Fund Direct Plan-Growth plan to consistently generate returns is comparable to that of the majority of funds in its category. It has an above-average capacity to limit losses in a falling market.
- The majority of the fund’s assets are invested in the Financial, Technology, Services, Automobile, and Materials industries. It has less exposure to the Financial and Technology sectors than other funds in the same category.
- ICICI Bank Ltd., Bajaj Finance Ltd., Avenue Supermarts Ltd., HDFC Bank Ltd., and Infosys Ltd. are the top five holdings of the fund.
- How safe are large-cap mutual funds?
As compared to mid-cap funds and small-cap funds, large-Cap funds are a comparatively safer form of equity investment due to their reputation for withstanding bear markets. As per the historical data, with a long time horizon, large-cap funds can generate stable returns.