Large and Mid-Cap Funds: How They Work And Their Performance Review

Large and mid-cap fund is a category of mutual funds that blends the stability of large-cap stocks with the growth potential of mid-cap stocks.

This equity mutual fund has to mandatorily invest a minimum of 35 per cent each in large-cap and mid-cap stocks.  

Large-cap companies, which are the top 100 by market capitalisation, boast of strong track records, recognised brand names, and financial stability. They tend to weather economic downturns better and are perceived as less risky due to their stability.

In contrast, mid-cap stocks, which are ranked in the 101-250 bracket by market capitalisation, offer higher growth potential without the high volatility of small-cap stocks. 

These companies, though not considered as stable as large-caps, exhibit more stability than small-caps and present a balanced option for investors seeking better returns without extreme risk. They are, however, considered riskier than large-caps.

Portfolio Allocation

Though at least 70 per cent of the fund should be allocated to equity instruments, with large- and mid-cap stocks constituting this portion, the remaining 30 per cent can be invested in other equities apart from large and mid-cap firms. They could be invested in debt as well as money market instruments, according to the Securities and Exchange Board of India (Sebi).  

Additionally, a fraction, 10 per cent, can be invested in real estate investment trusts (REITs) and infrastructure investment trusts (InvITs).

However, typically and more so in the case of top performers, the large-cap holding hovers close to 50 per cent and above, with over 40 per cent invested in mid-caps, which takes the total equity investment to around 90 per cent, according to data from Valueresearch.

Performance Review

Analysis of large and mid-cap funds’ performance based on data from the Association of Mutual Funds in India (Amfi), as on August 11, 2023, shows that the category gave a one-year average return of 16.81 per cent.  

Motilal Oswal Large and Midcap Fund was the top performer, yielding an impressive 26.50 per cent return, followed closely by HDFC Large and Mid Cap Fund and Bandhan Core Equity Fund, which offered attractive returns of 22.59 per cent and 22.55 per cent, respectively.  

A total of 12 funds out of a universe of 25, have managed to achieve returns beyond the category average of 16.81 per cent.

When comparing with other categories, the performance of large and mid-cap funds is reasonable.  

Large-cap funds average a return of 12.50 per cent, and mid-cap funds stand at 20.07 per cent in the last one year. So, large and mid-cap funds can be argued to have bridged the gap, offering investors the best of both categories.

The large and mid-cap fund category has an average 3-year return of 25.90 per cent and a 5-year return of 14.53 per cent.  

However, investors must carefully weigh their risk tolerance and investment goals before including large and mid-cap funds into their portfolios.