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Large Cap Mutual Funds | Features, Benefits and Taxation Rules

Last Updated : 30 Nov, 2023
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What are Large Cap Mutual Funds ?

Large Cap Mutual Funds are a category of mutual funds that primarily invest in stocks of well-established and financially stable companies with large market capitalisation. These companies are often leaders in their respective industries and have a proven track record of stability and growth. Large Cap Funds are known for their relatively lower risk compared to other equity mutual fund categories, making them a popular choice among conservative investors seeking exposure to the stock market.

Large-Cap Funds

Features of Large Cap Funds

1. Investment in Large Cap Stocks: As the name suggests, Large Cap Funds primarily invest in stocks of large-cap companies. These companies typically have a market capitalisation in the top 100-150 of a stock exchange.

2. Stability and Consistency: Large-cap stocks are generally known for their stability and consistent performance. They tend to be less volatile compared to mid-cap and small-cap stocks.

3. Diversification: Large Cap Funds maintain diversified portfolios by investing in stocks across various sectors and industries. This diversification helps spread risk and reduce the impact of poor performance in individual stocks.

4. Professional Management: These funds are managed by experienced fund managers who make informed investment decisions based on research and market analysis.

5. Historical Performance: Investors can review the historical performance of large-cap funds to gauge how they have performed over time.

6. Benchmarking: Large-cap funds are often benchmarked against major stock market indices, allowing investors to assess their performance relative to the broader market.

7. Long-Term Potential: Large-cap stocks can still have growth potential over the long term, offering the possibility of capital appreciation.

8. Low Expenses: Many large-cap funds offer competitive expense ratios, keeping the costs of investing relatively low.

9. Lack of Concentration Risk: Since these funds invest in a broad range of big companies, they are less susceptible to the impact of a single company’s poor performance.

10. Risk Mitigation: Investing in large-cap funds can help mitigate some of the risks associated with smaller, less-established companies, making them suitable for more conservative investors. Mitigation means investing in these funds can help reduce or lessen the risks that are typically associated with smaller, less-established companies. It can make investment experience less risky and more stable.

Benefits of Investing in Large Cap Funds

1. Stability and Safety: Large-cap companies are typically well-established, financially stable, and have a proven track record of success. Investing in them can provide a level of stability and safety that smaller companies may not offer.

2. Easy Buying and Selling: You can without difficulty buy or promote stocks of huge companies because many people want them. It’s like promoting a popular toy – masses of consumers.

3. Dividend Income: Some huge groups proportion their earnings with you by providing you money regularly. It’s like getting a bit allowance out of your huge brother or sister.

4. Growth Potential: Even even though they may be large, these agencies can still grow. It’s like a huge tree that maintains getting taller.

5. Less Bumpy Ride: Big employer shares do not jump up and down as tons as smaller ones. It’s like a roller coaster but not too frightening.

6. Lots of Information: Many specialists observe massive agencies, so you can effortlessly find out how they may be doing. It’s like having masses of clues for a treasure hunt.

7. Trusted Companies: Big agencies are usually famous and relied on. It’s like buying from a well-known and dependable keep.

8. Support from Big Investors: Big investors like big organisations too. Their assist could make these shares even extra strong.

You can evaluate how your investment is doing with the entire stock market. It’s like checking how your rating in a game compares to anyone else’s.

Taxation Rules of Large Cap Funds

1. Long-term Capital Gains (LTCG): If you hold units of Large Cap Mutual Funds for more than one year, the gains up to ₹1 lakh are exempt from tax. Gains exceeding ₹1 lakh are taxed at a flat rate of 10%.

2. Short-term Capital Gains (STCG): If you redeem units within one year of purchase, the gains are considered short-term and are taxed at your applicable income tax slab rate.

3. Dividend Distribution Tax (DDT): As of April 1, 2020, DDT is not applicable to equity-oriented mutual funds, including Large Cap Funds. Dividends received from Large Cap Funds are now taxable in the hands of investors at their applicable tax rates.

4. Securities Transaction Tax (STT): STT is applicable to the sale of mutual fund units, including those of Large Cap Funds. It is deducted at the time of redemption.

5. Indexation Benefit: Indexation is not available for equity-oriented mutual funds, including Large Cap Funds. Therefore, investors do not get the benefit of adjusting the cost of acquisition for inflation while calculating capital gains.

In conclusion, Large Cap Mutual Funds offer investors a stable and relatively low-risk option for participating in the stock market’s growth potential. They are well-suited for conservative investors seeking capital appreciation with a degree of stability. Large Cap Funds provide diversification benefits through exposure to large-cap stocks from various sectors, and their professional management adds value to investors’ portfolios. Understanding the taxation rules of Large Cap Funds is crucial for optimizing returns and managing tax liabilities. As with any investment, it’s advisable to consult a financial advisor to align your investment choices with your financial goals and risk tolerance.

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