Are large-cap mutual funds making a comeback?

• Follow

For the larger part of 2023, large-cap mutual funds have seen massive outflows. While the fund saw inflows worth Rs 1,981.14 crores between January-March 2023, it has been a downhill road since. The period between April-June 2023 saw outflows worth Rs 3,359.26 crores. July was no better, with people redeeming about Rs 1,880 crores from large-cap mutual funds. 

However, if returns are to be believed, actively managed large-cap mutual funds are steadily coming back in vogue. As per a recent report by Nuvama Wealth, for the year ended August 17, 2023, large cap funds have delivered average returns of 9.5%, as opposed to Nifty, which generated 7.92% returns in the same period. 

Steady returns 

Over a 1-year period, equity large cap mutual funds have generated 10.58% returns, slightly trailing behind the benchmark S&P BSE 100 Index, which delivered 11.35% returns in the same period. Over a 3-year period, while large cap funds saw 19.10% returns, the index marginally outperformed with 20.49%. 

But despite this, experts advise taking exposure to large-cap companies by way of flexi-cap or index funds, and not simply via large-cap funds.

Says Viral Bhatt, founder of Mumbai-based MoneyMantra, “A flex-cap fund allows investors to diversify their investment portfolio across companies of different market capitalization, mitigating risk and lowering volatility. Unlike simply mid, small or large-cap funds where the funds focus on stocks based on market capitalization, flexi-cap funds can invest in any company irrespective of the company’s market capitalization.

“Moreover, These funds are also known to deliver steady returns even during times of a bear market phase”, he continues. 

By definition, large-cap funds are mandated to invest 80% of their corpus in blue-chip companies or large, well-known stable companies. They offer secure, albeit moderate returns. Experts believe the remaining 20% allocation to small shares is pushing the large-cap segment. Notably, it has been a bumper year for the small-cap sector, with July 2023 seeing Rs 4,171.44 crore worth of inflows in these funds.