Get more stability with large-cap mutual funds!

Henil Shah
Get more stability with large-cap mutual funds!

Large caps can provide good downside protection as against mid-caps and small caps. Hence, it makes more sense to have one in your portfolio. Read on to find out more.

Large-caps mutual funds are those that invest most of their assets in blue-chip companies and hence offer great downside protection during the bear run when compared with mid-cap and small-cap funds. Said that the returns generated by large-cap funds during a rally are comparatively less than that of mid-cap and small-cap funds. That’s why most investors avoid having exposure to large-cap funds due to their lower returns. In the following paragraphs, we would explain what are large-cap funds and why you should consider having them in your portfolio.  

Defining large-cap funds  

As per the circular of the Securities and Exchange Board of India (SEBI) on mutual fund rationalisation, large-cap funds are those required to allocate a minimum of 80 per cent of their assets to the top 100 stocks in terms of full market capitalization.  

Comparing large, mid and small-cap  

In this section, we have compared large-cap, mid-cap and small-cap. And to do so we have assumed Nifty 100 Total Returns Index (TRI), Nifty Midcap 150 TRI and Nifty Smallcap 250 TRI as their respective representatives. In the below table, we have curated the rolling returns of Nifty 100 TRI, Nifty Midcap 150 TRI and Nifty Smallcap 250 TRI. The period considered for our study is from November 21, 2011, to November 22, 2021. 

Indices

Average Rolling Returns (%)

1-Year

3-Year

5-Year

Nifty 100 TRI

16.00

12.96

12.94

Nifty Midcap 150 TRI

22.05

17.37

17.61

Nifty Smallcap 250 TRI

21.05

13.84

14.14

 

In the above table, we can clearly witness that, the mid-caps and small-caps do perform better than large-caps. We use rolling returns because it gives us a better picture and also helps us measure the consistency of returns. Having said that, basing investment decisions solely on returns can prove to be harmful to your portfolio. Therefore, it is beneficial to also check the risk side of them. 

 

Indices

Risk Metrics

Standard Deviation (%)

Sharpe Ratio

Sortino Ratio

Maximum Drawdown (%)

Nifty 100 TRI

16.87

0.94

1.17

-37.92

Nifty Midcap 150 TRI

17.45

1.26

1.50

-43.06

Nifty Smallcap 250 TRI

18.89

1.11

1.29

-59.78

 

As we can see from the above table, in terms of risk as measured by standard deviation and maximum drawdown, large-caps are better in containing downside risks when compared to mid-caps and small-caps. Hence, it can prove to be advantageous to add large-cap funds to your portfolio, as it would aid you to contain the downside risk to some extent rather than just having a portfolio of mid-cap and small-cap funds. 

Below is the list of the top five large-cap funds 

Fund Name

Trailing Returns (%)

1-Year

3-Year

5-Year

Axis Bluechip Fund

32.36

21.60

20.34

Canara Robeco Bluechip Equity Fund

35.02

22.26

19.35

BNP Paribas Large Cap Fund

32.96

20.34

17.07

Kotak Bluechip Fund

38.64

21.05

17.04

IDBI India Top 100 Equity Fund

40.70

21.02

15.84

 

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