Funds are categorised as large-caps, mid-caps and small-caps on the basis of market capitalisation. The definition of market capitalisation is the market value of all outstanding shares of a particular company. The value here is derived by multiplying outstanding shares of the company with the market price of each share.
Market Capitalisation = Current Stock Price x Number of outstanding shares.
The Securities and Exchange Board of India (Sebi) defines large caps as the largest 100 companies in terms of market capitalisation.
Large-cap funds invest a larger proportion of their corpus in companies with large market capitalisation, though the criteria for large-cap companies may vary from company to company. Large cap funds hold a reputation to offer stable and sustainable returns over a period of time but are generally outperformed by small and mid-cap funds which have higher risk exposure.
The companies in this category hold a strong, trustworthy and well-established reputation. Institutional investors are more likely to invest in such companies for the long-term to create wealth. These funds are least risky when compared to other asset classes but bring in lesser growth when compared to its mid-cap and small-cap peers.
Large-cap funds are best suited for investors who are looking for stability and have a low-risk appetite. A large-cap fund is highly tapped by institutional investors as they are known to offer stable and sustainable returns over a period of time with low risk.Many large-cap companies are blue-chip stocks which pay a dividend, have lesser debt and a long history of stable earnings. Each time there is a market downturn, investors rush towards the large-cap safe heaven as large caps can withstand a slowdown without going out of business. So if you are looking for stability with good returns over the long-term, investing in large-cap funds could be a good bet.