Best Large and Mid-Cap Mutual Funds to Invest in 2021

When it comes to our financial goals, we always aim for the best. For children’s education, we will pick the best school we know. For vacation, we choose the best place that comes to our mind, and so on. Therefore, we try to meet our goals in the best way possible, and this same logic applies when we look for “best investments”.

Now, before you start googling “the best funds to invest in 2021”, here is an interesting bite:

How does investing in a fund with the stability and experience of leading business on its side—combined with the fresh outlook and enthusiasm of emerging businesses—sound?

If this is what you are looking for, then Large and Mid-Cap Mutual Funds can be a suitable option for you.

But, let us first understand the terms Large-Cap and Mid-Cap.

Large Cap

The Securities and Exchange Board of India (SEBI) defines 1st -100th companies in terms of full market capitalization as large-cap companies.
Therefore, we can say that large-cap companies have the highest market capitalisations in the market, where market capitalisation refers to the value of a company in the stock market. Large-cap companies can have a market capitalisation of ₹20,000 crores or more.
These companies typically have been in the business for decades. Also, they are amongst the market leaders in the industry. They can be deemed to be on a stable and steady growth trajectory, based on their stock performance over the past years.
These businesses can be less risky as compared to mid-caps.

Mid Cap

SEBI defines 101st -250th companies in terms of full market capitalization as mid-cap companies.
Therefore, we can say that mid-cap companies have mid-level market capitalisations. These companies can have a market capitalisation of more than ₹5,000 crores, but less than ₹20,000 crores.
They are considered aggressive, growth-driven and riskier investment bets as compared to large caps.
However, their aggression may also mean that there might be more potential for growth.

Composition of Large and Mid-Cap Funds

As per the SEBI guidelines, a fund having a minimum of 35% of its total assets invested in equity and equity related instruments of large cap companies and a minimum of 35% of total assets invested in equity and equity related instruments of mid-cap companies qualifies as a Large and Mid-Cap Fund.

Can large and mid-cap funds be a suitable addition to your portfolio?

Consider this narrative. In the world of finance, risk and reward can go hand in hand. Therefore, a fund aiming for higher returns can be comparatively risky than the fund aiming for fixed-income or stable return short-term returns.
What’s best for you may not be the best for the next person. All of us are different. Every individual differs from the other in terms of his risk appetite. It is essential to understand your goals and risk appetite first before investing.
The composition of large and mid-cap funds leaves the decision to invest 30% of the corpus open to the fund manager’s discretion. They may choose to invest that portion in more large caps or small caps, or debt instruments. This can prove to be a vital factor determining the level of the risk and returns for the fund.

You can use the following criteria to pick the best large and midcap mutual funds to invest in 2021.

1. Risk Appetite Matching

You can look at the underlying assets the funds are investing in. Based on that, you can understand the risk and the potential returns from the fund. A fund can be suitable for your portfolio if it can match your risk appetite as well as help you meet your financial goals.

2. Fund House and the Fund

You can look at the reputation of the Asset Management Company (AMC) and the total Asset Under Management (AUM) of your chosen fund(s). Also, you can look at the investment objective and how the fund has performed over the past years.

3. Fund Manager Performance

Looking at the fund manager’s experience can give you an idea about your chosen fund. Apart from your shortlisted fund, you can also look at the other funds managed by the fund manager.

4. Expense Ratio

The Total Expense Ratio (TER) is the total cost associated with the management of a fund. It can include fees and other expenses of managing a mutual fund. These costs have to be taken care of by the investors. TER can differ from one fund to another. You can look at the TER of your chosen fund, as these expenses can influence your returns.
Large and mid-cap funds can be suitable to meet goals of a comparatively longer horizon. Looking at your goals, risk appetite and fund and fund manager’s performance can help you choose suitable funds.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.