Best Large and Mid Cap Mutual Fund to Invest in 2021

​​Large and mid cap funds is a relatively new category of equity mutual funds that gives you a wealth-creation opportunity by investing in a optimum mix of large cap and mid cap stocks i.e. the leaders of today as well as the future leaders. Thus, you benefit from the stability of large caps and high growth potential of mid caps through a single fund.

If you have a look at the past market data you will find that performance across large caps and mid caps differs significantly over any given period. Hence, diversifying investment across large and mid cap stocks can generate better risk-adjusted returns.

So while you endeavour to create long term wealth, be cautious about any potential volatility even if the optimism in the market continues, and diversify your investment through a worthy large & mid cap fund.

Image by Gerd Altmann from Pixabay

What are Large & Midcap Funds?

Large & Midcap Funds are equity-oriented funds that are mandated to invest minimum 35% of its assets each in equity and equity related instruments of large-cap and mid-cap companies (i.e. top 250 companies in terms of market capitalisation).

While large-caps are known to provide stability across market cycles, their potential to generate very high returns is limited. On the other hand, mid-caps can outpace large cap returns over the long run though they can be highly volatile in the short term.

By investing in large & midcap funds, you can benefit from the steady returns capability of large-caps and high growth potential of mid-caps, at a reasonable degree of risk, provided you select the best funds in the category.

Graph: Placement of large and mid cap funds on risk-return spectrum

Note: For illustrative purpose only
(Source: PersonalFN Research)

On risk-return parameters, large & midcap funds are placed just above large-cap funds. With predominant exposure to both large and mid cap stocks, these funds are riskier than pure large cap funds but less risky than pure mid cap fund and multi cap/flexi cap funds that invest across market capitalisation. This means large & mid cap funds can offer better returns than large-caps though at a slightly higher risk.

If you have a high risk appetite, the capability of bearing the impact of short-term volatility, and long term investment horizon of at least 5 years, large & mid cap fund can be a form a part of your core equity mutual fund portfolio.

Table: Performance scorecard of Large and Mid Cap Mutual Funds

Scheme Name Absolute (%) CAGR (%)
1 Year 2 Years 3 Years 5 Years 7 Years
Mirae Asset Emerging Bluechip 35.00 26.37 16.37 22.83 27.68
Edelweiss Large & Mid Cap Fund 25.97 20.49 12.53 16.41 18.04
Canara Rob Emerg Equities Fund 27.72 21.89 12.35 19.59 26.30
Kotak Equity Opp Fund 20.87 20.54 11.98 17.79 19.37
Invesco India Growth Opp Fund 21.30 18.27 11.80 17.57 18.71
Tata Large & Mid Cap Fund 21.60 20.25 11.68 15.67 17.95
Sundaram Large and Mid Cap Fund 16.61 16.73 10.76 16.31 18.52
Principal Emerging Bluechip Fund 26.23 21.51 10.64 19.19 23.44
LIC MF Large & Midcap Fund 16.76 18.34 10.63 18.10 --
DSP Equity Opportunities Fund 23.01 20.61 10.61 17.80 18.88
Nifty LargeMidcap 250 Index - TRI 27.59 18.82 10.39 16.88 18.40
Data as on February 04, 2021
(Source: ACE MF)
*Please note, this table only represents the best performing Large and Mid Cap Funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for an indicative purpose. Speak to your investment advisor for further assistance before investing.

In conditions where mid cap stocks were under severe stress, large & mid cap funds were able to sail through it without much harm due to the presence of the large cap component. While in the current phase when mid cap stocks are outperforming large caps, large & mid cap funds continue to do well.

Best large and mid cap mutual funds to invest in 2021:

Based on our analysis and research at PersonalFN, Mirae Asset Emerging Bluechip Fund, Canara Robeco Emerging Equities Fund, Invesco India Growth Opprtunities Fund, Kotak Equity Opportunities Fund, and Principal Emerging Bluechip Fund are currently the best schemes in the large and mid cap funds category. These schemes have proven their worth even during tough market conditions by carefully constructing the portfolio and have rewarded its investors with superior risk-adjusted returns.

While picking funds in the large & midcap category, remember that some schemes are large-cap oriented while others are mid-cap oriented. Therefore, it is important to assess your risk profile before selecting among the top funds in the large & mid cap category. Also, note that the past superior performance of some schemes may not sustain in the future.

Here are the other facets you need to look into to select the best Large & midcap funds:

Quantitative Parameters:

Analyse if the fund has shown consistency in performance across various market periods (bull and bear market phases) compared to the benchmark and category peers. While all funds may perform well during the bull phase, an important parameter while selecting a large & midcap fund is to determine its ability to manage the downside risk during tough market conditions.

Then determine whether the fund has rewarded its investors well for the risk they have taken using risk-reward ratios like Sharpe Ratio, Sortino Ratio, and Standard Deviation over a 3-year period.

Give preference to those funds that stand strong on risk-reward parameters while short listing funds for your portfolio.

Qualitative Parameters

Qualitative parameters are often overlooked though they are a vital aspect in the selection process. It involves determining the quality of the portfolio and the efficiency of fund manager/house.

The fund house should have a significant performance record and must follow robust investment processes with adequate risk management systems in place.

And because the fund's performance is directly dependent on the ability of its fund manager, check the qualification and experience of the fund manager and the track record of the other schemes they manage.

Look at the fund's portfolio for how well diversified it is across stocks/sectors. Remember that a concentrated portfolio can expose you, the investor/s, to higher risk. Ensure that the scheme optimally diversifies its portfolio across large and mid cap space to help it sail through adverse market conditions and reduce the impact of volatility.

Moreover, keep a tab on the churning rate of the securities in the portfolio because a high churning rate can make the portfolio prone to volatility and negatively impact the overall returns of the scheme. Analyse, the portfolio turnover ratio and expense ratio to assess how efficiently the fund controls the churning and limits the expenses.

Yes, we know that the above list is a lot for an average investor to look at. It involves number crunching and much of the data is not easily available in one place. But if you do need to narrow down on the top funds, these factors are of utmost importance.

Watch this short video on selecting mutual fund schemes:


At PersonalFN, we select and recommend mutual funds based on quantitative and qualitative parameters using our S.M.A.R.T Score Matrix:

  • S - Systems and Processes

  • M - Market Cycle Performance

  • A - Asset Management Style

  • R - Risk-Reward Ratios

  • T - Performance Track Record

The outlook for large and mid cap mutual funds in 2021:

The equity market has scaled new highs with a broad-based rally. Both large cap and mid cap index are trading above the pre-COVID levels on expectations of economic recovery.

With COVID-19 cases dropping in India, consumption demand is expected to make a comeback which can further improve corporate earnings. Moreover, the Union Budget 2021 announced various investment proposals to support economic growth. Though it remains to be seen how efficiently its execution takes place.

When the economic recovery takes place, mid cap stocks could benefit and continue to outperform large caps. However, if we see any adverse event going forward and the equity market witnesses high volatility, the large cap component may prove to be resilient in such a scenario. Thus, large & mid cap funds seem to be well placed to generate stable returns going forward.

But do note that the performance will largely depend on the respective large and mid cap allocation of the scheme as well as the ability of the fund management to pick quality stocks in the segment that are expected to do well in the long run.

Before investing in any scheme make sure to clearly define your financial goals, time horizon, and assess your risk profile. Invest in schemes that align with your set investment objective and personalised asset allocation plan. Review your investment at regular intervals to ensure you're on the right track to accomplish your envisioned financial goals.

Lastly, when you invest in large and mid cap funds, prefer the SIP route to mitigate the impact of volatility and benefit from the power of compounding.

PS: If you wish to select worthy mutual fund schemes, I recommend that you subscribe to PersonalFN's unbiased premium research service, FundSelect.

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Warm Regards,
Divya Grover
Research Analyst

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