Large & MidCap Mutual Funds

As per the SEBI's classification, large and mid-cap mutual funds are equity funds that invest at least 35% of their assets in large cap and mid cap stocks each.

Large-cap companies are the top 100 listed companies by market capitalisation. Mid caps are the next 150 (101-250) ranked based on market capitalisation.

Large-cap stocks offer stability, while mid-cap stocks offer higher growth potential. Thus, by investing in large and mid-cap funds, you get a good mix of these features.

Access to a Larger Universe of Stocks

A pure large cap mutual fund has to primarily allocate to 100 stocks (the large cap universe). A pure mid cap mutual fund has to primarily allocate to 150 stocks (the mid cap universe).

However, a large and midcap can tap into both large cap and mid cap universes. This has two benefits:

1. Fund manager has more options to choose from
2. Automatic diversification at market cap (company size) level

Stability Combined with Growth

Large caps offer stability but haven’t grown as quickly as mid caps. Mid caps offer high growth potential but can be quite volatile.

The category helps bridge the gap between pure large-cap and mid-cap funds.

The table below summarises the returns of large-cap, mid-cap, and large & midcap indices over 5, 10 and 15 years (ending Sep 29, 2023)

Source: NSE

Here, the returns are higher than the Nifty 100 but lower than the Nifty Midcap 150.

In the long term, the large and midcap index has been less volatile than pure large-cap and mid-cap indices.

Source: NSE

In short: Large & mid-cap funds have the potential to generate high returns with lower volatility than pure large-cap and mid-cap funds as seen in the past performance of the benchmark indices.

Not suitable for the short-term

Though large and mid-cap funds are all about stability and high growth potential, it may not hold true in the short term. 

In the short term, depending on the market conditions, your equity returns may be surprisingly good or surprisingly bad. That’s the volatile nature of equities in the short-term.

Hence, it is advised to invest in equities like large and mid cap funds over the long-term (5+ years) and avoid investing for the short term (up to 3 years)

The answer largely depends on your investment goals and risk appetite. Large and mid-cap funds are high-risk investments. Thus, you can consider investing in large and mid-cap funds if you are looking for:

Long-term wealth creation

Large and mid-cap funds are suitable for investors who want to grow their wealth in the long term. These funds are suitable for long-term goals such as buying a house, retirement, etc. 

Large and mid-cap funds can offer better returns potential than pure large-cap funds in the long run at similar risk levels.

Midcap exposure with lower risk

You may want to invest in mid cap funds but probably don’t have the risk appetite to invest in a fund that invests primarily in mid caps.

Investing in a diversified large and mid cap fund can get you some mid cap exposure without exposing you to the very high risk of pure mid cap mutual funds.

Note: The above information is for educational purposes only. It is best to consult a financial advisor before making investment decisions.