Concept of Large Cap

Understanding the Large Cap Funds & their Investment Strategy

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Large Cap Fund - Meaning

The large-cap mutual funds are those equity plans which have the majority of the investments in the equity stocks and shares of the large and giant companies. The funds invest the money in those companies which are well-established, trustworthy, reputable, have strong corporate governance and possess strong market presence. Accordingly, the funds invested in these companies generate stable growth and sustainable returns over a period. The performance of these funds is analysed as against the set benchmark, viz.: Sensex and BSE 100.

Understanding the Concept of Large Companies

The equity market includes a large number of listed companies which are indulged in different activities and thus fall in various industries or sectors, like banking & finance, infrastructure, IT, chemical, and so on. These companies are classified into three broad categories on the basis of their market capitalisation, i.e., large-cap, small-cap and mid-cap companies. Market capitalisation refers to the market value of the shares held by those companies. It is calculated with the following formula:

Market Cap = Total Number of Shares Outstanding * Stock Price of Each Share

The large-cap companies are those which have market cap amounting to Rs.50 Lakh Crore or more. The companies have more than the said market value are termed to be large in the market, and the shares of such companies are called the large-cap shares or stocks. The large-cap companies are the corporates which contribute to the development of the economy of the country and have a great influence on the performance of the stock market. These are well-established entities which have already reached their highest level and achieved their objectives and now perform consistently providing stable growth to the economy as a whole. Some of the examples of large-cap companies are State Bank of India, Infosys Ltd., ITC Ltd., etc.

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The companies after bifurcation as per the market capitalisation, are further divided into different sectors as per their nature of business like SBI falls in the banking industry, Infosys falls in the IT sector, and ITC falls in the FMCG industry. All the companies in the equity market are divided into different sectors, and their performance is measured accordingly.

The large-cap mutual funds are those plans which have investments in the large-cap stocks of the companies which are indulged in different business activities or sectors.

Risk & Reward in Large-Cap Mutual Funds

Reward in Large Cap Funds

The investments in the case of large-cap mutual funds are highly rewarding due to the allocation of assets in the large and giant companies which are well-established and have great possession in the market. The returns and growth in these funds are consistent as they don’t get fluctuated due to market volatility and tend to remain stable irrespective of the market moves.

Risk in Large Cap Funds

 The risk in the case of large cap funds is associated with the fundamental performance and share price movement of large companies.

Fundamental Performance

The holdings of the large cap funds are well-established entities with a large number of shareholders due to which the share price movements are not much altered. With the higher demand for products and low risk in the economy, the performance is consistent, and hence the risk factors are moderate. For instance, the large size companies like SBI, Infosys, ITC, etc., can not be expected to have an average annual growth rate of 40 % to 50%, in one year, and negative returns with high margins in the very next year. The reason being is that these companies have already captured a large portion of the market and have attained their primary objectives, and now their motive is to maintain stability. Therefore, they are considered to be big market players and have great influence on the market from their performance.

Share Price Movement

The prices of the shares of these companies are not fluctuated by the market moves, as they possess huge market presence. The growth and performance of the large-cap funds remain steady as the companies grow at a stable rate irrespective of the market volatility due to which there are fewer movements in the share price of the companies.

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Accordingly, as the risk factors in the large-cap are moderate-low, the returns are stable and provide steady growth to the investors. There are not many fluctuations in the share values of which the returns are consistent irrespective of the market moves. The large-cap funds mirror the performance of the economy and are geared to handle market cycles in a better way.

Our recommendations are being made after considering the risk factors of all the large-cap funds in the market, and we keep a track on the performance of the holdings of the schemes as well so as to make the best suggestions to the clients.

Investment Strategy & Approach

large cap investment style

Investment strategy includes the rules, behaviours, and procedures which are adopted by the fund manager to design the investment portfolio. The fund managers have certain projections on the basis of which they formulate the plans and procedures of designing the fund’s portfolio, and there are two major tendencies which are being followed by them.

Value Style of Investing

There are some companies which have good returns and performance track and have grown higher in the recent times. Under this strategy, the fund managers choose the shares of the companies which are available at cheaper rates, but the fundamentals are strong and have high potential to grow in future.

Growth Style Investing

While selecting the shares of the companies in the growth style of investing, the fund managers analyse the growth prospects of the companies which have strong management principles and adopt measures to expand in the future providing high worth to the shareholders. By analysing the companies in the large-cap division, the fund managers opt for the best ones.

Investment Strategy in Large-Cap Funds

The fund managers of the large-cap schemes follow both the strategies as per the market scenario. When the market goes up resulting in high growth trends in the companies, they opt for the growth style of investing; while in the case of downside market when the growth is limited, they opt for such companies which have high potential to perform excessively in the future.

At MySIPonline, our fund analysts have adopted the same criterion, and they keep evaluating the market trends to make the best recommendations of the large-cap funds to the investors. Our recommendations are based on the same phenomenon.

investment approach

Investment approach refers to the tactics and style adopted by the fund manager while considering the macro factors of the economy or the sectors in which the companies fall to design the best portfolios for the schemes. There are two different approaches which are being adopted by the fund managers for making investments while opting for the best shares:

Top-Down Approach

Under this, the fund managers select the companies after analysing various the macroeconomic factors and determine the industry and sectors which are expected to do well in the future. The motive of the fund managers is to determine all the external as well as internal factors which have an influence on the values of the shares of the companies and then make the final selection of the same for a portfolio.

Bottom Up Approach

As per this approach, the fund managers select the companies after evaluating the microeconomic factors and determining the particular company’s performance and other internal factors instead of considering the macro factors. The motive of the fund managers is to ascertain all the microelements to analyse the performance of the company at the individual level.

Investment Approach in Large-Cap Funds

The large-cap companies have an influence at the macro level, and they assist in leading the whole economy. Thus, the fund managers adopt the top-down approach to select the best companies and right shares for the portfolio.

Our research team also follows the same approach to recommend the best funds to the investors. We keep tracking fund’s performances and analyse the same as per the macroeconomic factors to determine the influence and then make the best selection for your requirements.

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