Understanding mutual funds: If long-term investment through SIPs is your goal then investing in large and midcap funds makes sense for you.
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Investing in the large and midcap category offers a balanced approach to growth and stability in an equity portfolio, eliminating the need for investors to diversify into separate schemes.
So let’s first understand what are large and midcap funds?
Financial experts suggest that long-term investors in the stock market should consider investing in large and midcap schemes. One way to do this is by starting a long-term systematic investment plan (SIP) in this category, which offers the combined benefits of stability from large caps and growth potential from midcap companies.
Large and midcap funds are a category where fund managers are required to allocate a minimum of 35% of the fund towards large-cap stocks, another 35% towards mid-cap stocks, and the remaining 30% at their discretion. Large caps are stocks ranked between 1-100 by market capitalisation while midcaps are from 101-250.
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This strategy provides investors exposure to the top 250 companies based on market capitalization.
Depending on their investment goals, fund managers can choose to include more midcaps and small-caps for higher returns or focus on large caps for stability.
As of January 31, 2024, the large and midcap category boasts assets worth Rs 1.90 lakh crore, spread across 29 schemes with 8.9 million folios held by investors.
Who should invest in large and midcap funds?
Financial planners recommend large and midcap schemes for individuals aiming to build wealth through a long-term SIP spanning 10 years or more. This investment option can help achieve financial goals such as purchasing a home, funding children’s education, or planning for retirement beyond a decade.
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These funds are suitable for investors seeking stable returns without the volatility associated with pure midcap funds, as they allocate a significant portion to large-cap stocks that typically deliver steady returns even during market uncertainties.
