Investment in Large cap funds – Top funds & taxation

Introduction

Investing in equity mutual funds is a challenging task. Choosing a scheme with the right combination of choice of stocks, and good performance can be a difficult process. While selecting an equity portfolio, the market capitalization (Refer below for the Meaning) or size of the company is an important parameter. After all, the market capitalization determines the risks and benefits of investing in the company. Equity mutual fund schemes are also categorized based on market capitalization They are:

  1. large-cap mutual funds, 
  2. mid-cap mutual funds,
  3. small-cap mutual funds, etc.

Market Capitalization (Market cap)

In simple terms, market capitalization is the value of the company which is traded in the stock exchange. It can be calculated as you multiply the present share price by the total number of outstanding shares of that particular company. It is an important aspect which can help investors determine the returns from a share and the risks involved. Based on market capitalization, mutual fund schemes are categorized as large-cap, mid-cap, small-cap, and multi-cap schemes.

Investment in large-cap mutual funds

Large Cap Mutual Funds are equity funds that invest a bigger proportion of their total assets in companies with a large market capitalization.

Large Cap Funds are hence known to generate regular dividends and steady compounding of wealth. According to SEBI, large-cap companies fall in the top 100 of the list of companies according to market capitalization. Hence, investing in these companies is considered to be less risky and steady. However, all equity mutual funds are affected by market conditions. When the benchmark of the scheme fluctuates, the Net Asset Value (NAV) moves up or down too. 

Nature of investor’s who can invest

If an investor is risk-averse but want to benefit from equity investments and want to invest for Long term, then large-cap mutual funds are the best option available for Such investor. Since these schemes invest in financially strong large-cap companies, they can withstand a slowdown in the markets. However, the returns are lower compared to mid-cap or small-cap funds.

Large-cap mutual funds carry a reasonable amount of risk and offer stable returns. Hence, many investors turn to these schemes when they are planning their investment for retirement.

Taxation of Mutual Funds

Redemption of the units of a large-cap fund, Attracts Income Tax under the head “Capital Gains” andThe rate of tax depends on the holding period – the period for which you were invested in the fund:

  • The capital gains earned by you for a holding period of up to one year = Short Term Capital Gain (STCG) which is taxed at 15%.
  • The capital gains earned by you for a holding period of more than one year = Long Term Capital Gain (LTCG). LTCG up to Rs. 1 lakh is not taxable. Any LTCG above this amount is taxed at the rate of 10% without indexation benefits.

Here is the list of the top 5 Large Cap mutual funds based on 1yr return and ratings.

Fund nameCategoryRating(out of 5)1Yr returnFund size(approx.)
ICICI Prudential Blue Chip FundEquity513.6%35,929 cr.
Kotak Blue Chip FundEquity59.7%5,427 cr.
Sundaram Large Cap FundEquity512%3,107 cr.
IDBI top 100 Equity FundEquity411%643 cr.
Mirae Asset Large Cap fundEquity49.2%35,407 cr.

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