#WiseWithEdelweissHow to choose ideal large cap mutual funds to invest in Ÿ Investment Objecve:...

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What are large cap mutual fund schemes?

Large cap mutual funds schemes invest a larger propor�on of their corpus in companies with large market capitaliza�on in accordance with SEBI (Mutual Funds) Regula�ons. Market capitaliza�on is calculated by the number of shares outstanding mul�plied by the current market price of one share; for example, a company that has 1 lakh shares outstanding and the current market price of each share is Rs.100, has a market capitaliza�on of Rs.1 crore (1 lakh shares mul�plied by Rs100 per share). According to the new SEBI guidelines, schemes classified as large cap have to invest at least 80% of their assets in 100 of the biggest companies listed in the stock exchange in terms of market capitaliza�on. The list of stock with market capitalisa�on is shared by AMFI from �me to �me. The remaining can be invested in mid or small cap stocks as per Scheme Informa�on Document. Since large cap companies are the ones that have been around for a very long �me and have a proven track record, these investments are ideal for risk-averse investors who have a long-term holding period for about 5 to 10 years.

Benefits of inves�ng in large cap mutual funds schemes.

Ÿ Large cap mutual funds schemes have the poten�al to generate a�rac�ve returns in the long run. They are wealth compounders and along with capital apprecia�on, large cap companies are known to pay regular dividends.

Ÿ Since most large cap companies are established, trustworthy and have strong corporate governance prac�ces, investments in large cap funds are generally less risky and endeavour to provide steady returns, when compared to mid and small cap funds.

Ÿ In a bear market, where investors are looking for 'safe havens' to park their money, large cap funds

have the poten�al of outperforming small and mid-cap funds.

Ÿ Large cap funds are suitable for investors who want growth in their por�olio through equity exposure to high quality stocks, but want stability as well.

Ÿ These investments are ideal for people who are inves�ng in mutual funds for the first �me as they are generally considered safer.

How to choose ideal large cap mutual funds to invest in

Ÿ Investment Objec�ve: Investors must iden�fy their investment objec�ve, �me horizon and risk appe�te to be able to assess if a large cap fund is a suitable choice for them. Large cap funds are best suited for risk-averse investors who have a long-term investment horizon.

Ÿ Consistent performance: Once it has been validated that a large cap mutual fund sa�sfies your investment criteria, you should look for a fund which has consistently beaten its benchmark index and outperformed its peers. Best large capmutual funds have a reasonably long and consistent track record.

Ÿ Risk-Return tradeoff: Select a fund which gives be�er returns than others for the same amount of risk taken.

Ÿ Cost: All mutual funds charge a fee to manage your money, which is called 'expense ra�o'. According to the new SEBI mandate, funds cannot charge an expense ra�o exceeding 2.5%. Judiciously select a fund with a lower expense ra�o as this will eat into your returns.

The toughest part in making an investment decision is selec�ng the right mutual fund schemes because the number of choices available can be overwhelming. Investors should exercise due diligence in their selec�on process as picking the right fund could greatly improve the outcome of their investments and add to their wealth.