Large & mid cap mutual fund schemes invest most of their corpus in large and mid cap stocks. As per the Sebi mandate, large & mid cap schemes are open-ended equity schemes that will invest a minimum of 35% of total assets in large cap companies, and a minimum of 35% of total assets in mid cap stocks.
However, this definition does not tell the whole story about the large & mid cap category. Consider this: The 35% mandatory investments in mid cap stocks make them risky. However, they are less risky than pure mid cap schemes that invest around 65% in mid cap stocks. Also, the 35% investments in large cap investments offer them some stability. But they are riskier than pure large cap schemes. Then there is the question of the remaining 30% of the corpus.
The fund manager has the option to decide where the money will be invested. If he thinks the large cap space is attractive, he may invest in large cap stocks. If he thinks mid cap and small cap stocks are poised to take off, he may invest in them. As you can see, these investments may increase or decrease the risk in these schemes.
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If all these explanations add to your confusion, we will make it simple. These schemes are suitable for aggressive investors who are willing to invest in mid cap stocks. It may have more exposure to large cap or mid cap stocks, based on the market conditions and the outlook of the fund manager. So, you should get into these schemes only if you are willing to take extra risk.
However, you need not worry too much about this type of investing. Before Sebi introduced categorisation of mutual funds, most equity mutual funds invest mostly in large cap and mid cap schemes. Especially, in a bull market most schemes used to have large allocation to mid cap stocks. Some adventurous ones also used to bet on small cap stocks.
According to mutual fund advisors, these schemes will evolve over a long period. There will be schemes that will be inclined towards large cap stocks and some schemes will be leaning toward mid cap stocks. This will make it easier for investors to choose the schemes based on their risk tolerance. For example, if you want more margin of safety, opt for schemes that are tilted towards large cap stocks. Aggressive investors may bet on schemes that are inclined towards mid cap stocks.
If you have a long-term horizon and are willing to take a little extra risk, you may choose from our list of recommended large & mid cap schemes. Before proceeding to the recommendation list, here are some updates. Axis Growth Opportunities Fund, one of the recommended schemes, has been in the third quartile in the last eight months. It had been in the fourth quartile for two months before that. Canara Robeco Emerging Equities Fund has been in the fourth quartile for five months. The scheme had been in the third quartile for the last six months. Sundaram Large & Mid Cap Fund has been in the fourth quartile in the last five months. Mirae Asset Emerging Bluechip Fund has been in the third quartile for the last seven months. We will closely follow the performance of the recommended schemes and update you every month.
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Best large & mid cap mutual funds to invest in March 2024:
- Axis Growth Opportunities Fund
- Mirae Asset Large & Midcap Fund (SIP capped at Rs 25,000)
- Canara Robeco Emerging Equities Fund
- Sundaram Large and Midcap Fund
- Kotak Equity Opportunities Fund
- Quant Large & Mid Cap Fund
Our methodology:
ETMutualFunds.com has employed the following parameters for shortlisting the Equity mutual fund schemes.
1. Mean rolling returns: Rolled daily for the last three years.
2. Consistency in the last three years: Hurst Exponent, H is used for computing the consistency of a fund. The H exponent is a measure of the randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to funds with low H.
i) When H = 0.5, the series of returns is said to be a geometric Brownian time series. These types of time series are difficult to forecast.
ii) When H <0.5, the series is said to be mean reverting.
iii) When H>0.5, the series is said to be persistent. The larger the value of H, the stronger is the trend of the series
3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this measure.
X =Returns below zero
Y = Sum of all squares of X
Z = Y/number of days taken for computing the ratio
Downside risk = Square root of Z
4. Outperformance: It is measured by Jensen's Alpha for the last three years. Jensen's Alpha shows the risk-adjusted return generated by a mutual fund scheme relative to the expected market return predicted by the Capital Asset Pricing Model (CAPM). Higher Alpha indicates that the portfolio performance has outstripped the returns predicted by the market.
Average returns generated by the MF Scheme =
[Risk Free Rate + Beta of the MF Scheme * {(Average return of the index - Risk Free Rate}
5. Asset size: For Equity funds, the threshold asset size is Rs 50 crore
(Disclaimer: past performance is no guarantee for future performance.)
