Looking for the Best Large Cap Funds 2019? Find Out Here

Are you searching for the best large-cap funds in an election year?

If yes, you are on the right track.

But are you selecting large-cap funds wisely?

Perhaps you would like to find out…

New Year hasn’t changed the fate of plenty of stocks listed on Indian stock markets. Their slide continues even in 2019. Indices such as CNX Nifty and S&P BSE Sensex, which have many heavyweight large caps, are down 2%-2.5% from the beginning of the year but individual stocks outside these indices have lost as much as 15%-20% so far.

Like we experienced in 2018, only a handful of stocks are propping up major indices even now. Of course, you can’t expect things to change in a month just because we have entered a New Year.  

If you aren’t aware of large-cap funds, you may like to know their role in your investment portfolio:

According to SEBI’s categorisation criteria, an equity-oriented mutual fund will be called a large-cap fund if it invests a minimum of 80% in equity & equity related instruments of large-cap stocks. Large-cap stocks are top 100 stocks on market capitalisation.

Stable businesses, greater market share, quality of management, and the sustainability prospects are some of the traits that large caps possess. These are companies with strong balance sheets and proven track record.  Hence certain large-cap companies are also known as blue-chips.

When the equity markets are turbulent (as is the case now), large caps usually tend to withstand better than the mid and small caps. You may have observed that in times when mid and small caps have been hammered, large caps have done relatively better. Hence, diversified equity funds with a predominant large-cap allocation can offer stability to your investment portfolio. 

Graph 1: Large-cap funds: How are they placed on the risk-return spectrum?


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


On the risk-return spectrum, large-cap funds are considered to be the safest among equity funds. If you have the stomach for moderately high risk, you may skew your equity portfolio to large-cap mutual fund schemes.  When the equity markets turn turbulent, a pure large cap fund can arrest the downside risk better compared to their pure mid-cap counterparts and even large & mid-cap peers.

Thus, large-cap mutual funds are suitable if you are looking for relatively stable, market-beating returns and have an investment time horizon of at least five years.

PersonalFN’s research believes, core holdings should form 60% of your mutual fund portfolio and the rest 40% shall consist of satellite holdings. The ‘Core’ part of your portfolio focuses on the stable schemes (like the large-cap ones) with a long-term view, while the ‘Satellite’ part should be around capitalising on opportunities in the mid and small-cap space (with mid and small-cap funds and opportunities/special themes fund). This will help you in the following ways:

✔  Diversify your portfolio effectively and smartly

✔  Offer better stability to your portfolio and avoid the unnecessary churning

✔  Generate superior returns without taking excessive risk.

[Read: Have You Planned A Strategy To Invest In Mutual Funds In 2019?] 

So, even if you are an aggressive investor, you shouldn’t completely eliminate large-cap mutual funds from your portfolio. You should hold a mix of large-cap funds, value funds and multi-cap funds, and, of course, as a high-risk taker hold mid and small-cap funds.

Having said that, picking funds that have the potential to deliver high risk-adjusted returns is crucial.

Table: Best performing large-cap funds of 2018 - Should you invest?

Scheme Name Returns (Absolute %)
29/Dec/17 To 31/Dec/18
Axis Bluechip Fund(G)-Direct Plan 8.1
Canara Rob Bluechip Equity Fund(G)-Direct Plan 4.5
Edelweiss Large Cap Fund(G)-Direct Plan 2.5
JM Large Cap Fund(G)-Direct Plan 2.0
LIC MF Large Cap Fund(G)-Direct Plan 1.9
Invesco India Largecap Fund(G)-Direct Plan 1.4
HDFC Top 100 Fund(G)-Direct Plan 0.9
Reliance Large Cap Fund(G)-Direct Plan 0.9
UTI Mastershare(G)-Direct Plan 0.5
ICICI Pru Bluechip Fund(G)-Direct Plan 0.2
NIFTY 50 – TRI 4.6
Data as on December 31, 2018
(Source: ACE MF)

*Please note, this table only represents the best performing  Large 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.


The mutual schemes given in the above table were the top-10 performing schemes of 2018 in the large-cap fund category. The following are some of the top-performing mutual fund schemes:

Which of these schemes are good for you?

✔  Axis Bluechip Fund

✔  Edelweiss Large Cap Fund

✔  Franklin India Bluechip Fund

✔  Invesco India Largecap Fund

✔  ICICI Pru Bluechip Fund

✔  UTI Mastershare

✔  SBI Blue Chip Fund

But does that mean you should invest in them even in 2019, hoping that their good performance will continue in future?

Most investors, especially the novice ones make a mistake of selecting large-cap funds based on their recent outperformance. They completely ignore the important factors.

Remember not to pick large-cap funds by:

Here’s how you should select a large-cap fund…

Quantitative Parameters:

  1. Performance and risk analysis

    This is to analyse if the fund has shown consistency in performance across various market periods with decent risk-adjusted returns. 

    Under this, you need to rank the fund based on quantitative parameters like rolling returns across short-term and long-term periods, such as a 1-year, 3-year, and 5-year timeframe, and on risk-reward ratios like Sharpe Ratio, Sortino Ratio, and Standard Deviation over a 3-year period.

  2. Performance across market cycles

    You need to ensure that the fund has the ability to perform consistently across multiple market cycles. Therefore, compare the performance of all the available large-cap funds vis-à-vis their benchmark index across bull phases and bear market phases.

    A fund that performs well on both sides of the market should rank higher on the list.

Qualitative Parameters

  1. Portfolio Quality

    Adequate Diversification - The scheme should not hold a highly concentrated portfolio. The portfolio should be well-diversified and the exposure to the top-10 holdings should be ideally under 50%.

    Low Churn - Engaging in high churning can result in trading and high turnover costTherefore, you also need to consider the portfolio turnover ratio and expenses, and penalise funds involved in high churning, i.e. those funds with a turnover ratio of more than 100%.

  2. Quality of Fund Management

    You also need to consider the fund manager’s experience, his workload, and the consistency of the fund house. Therefore, assess the following criteria:

    The fund manager’s work experience – He/she should have a decent experience in investment research and fund management, ideally over a decade.

    The number of schemes managed – A fund manager usually manages multiple schemes. Thus, you need to check if the fund manager is not loaded with a large number of schemes. If he is managing more than five open-ended funds, it should raise a red flag.

    The efficiency of the fund house in managing your money – Research about the fund house’s consistent performance across schemes. Find out if only a few selected schemes are doing well. A fund house that performs well across the board is an indication of sound investment processes and risk management techniques in place.

Yes, we know that the above list is a lot for an average investor to look at. It involves a lot of 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:

 

PersonalFN adopts comprehensive mutual fund research process to select the best mutual  funds. Based on a composite score, which has a weightage to each parameter, PersonalFN gives its views on each fund recommended under various mutual fund research services.

The outlook for 2019:

Going by the valuation of CNX Nifty as measured by Price-to-Earnings (P/E) ratio, valuations in the large-cap space have cooled off a bit over last one year. However, terming the current levels as cheap would be an imprudent judgement. Now it is important companies in the large-cap domain to declare extraordinary results and justify the valuations.

Graph 2: How do valuations in the large-cap space look?


Data as on January 29, 2019
(Source: NSE)


Moreover, some bluechip companies are grappled with governance issues nowadays. If such instances happen repeatedly even in some of India’s largest companies, they might soon lose their premium valuations.

Needless to say, 2019 will be a year of high drama and high volatility. Internationally, trade war conditions are likely to worsen and the global economic growth is expected to cool off.

If the Modi-led-NDA government doesn’t get the second term, markets might give a knee-jerk negative reaction.

On this backdrop, while large-cap funds are an appropriate choice, as an investor you will have to be extremely careful when selecting large-cap funds. Following the core and satellite strategy to invest in large-cap funds might work the best for you in 2019.

Please remember this before you invest in mutual funds:

  • Clearly identify your financial goals.

  • Assess your risk appetite. Only if you have a high-risk appetite and longer time horizon (at least 3-5 years) before financial goals befall, skew the portfolio to equity-oriented mutual funds; otherwise, stick to debt mutual funds and other fixed-income investments.

  • Recognise the financial goals you wish to invest and align your mutual fund investment. Appreciate the power of compounding.

  • Based on your risk appetite, draw up a personalised asset allocation chart.

  • Gauge your investment time horizon.

And finally, when you invest in mutual funds prefer Systematic Investment Plans (SIPs), a mode of investing in mutual funds and opt for direct plans.

Editor’s note:

PersonalFN offers you a great opportunity if you’re looking for “high investment gains at relatively moderate risk”. Based on the ‘core and satellite’ approach to investing, here’s PersonalFN’s premium report: The Strategic Funds Portfolio For 2025 (2019 Edition).

Graph: FIIs ditching India


In this report, PersonalFN will provide you with a ready-made portfolio of its top equity mutual funds schemes for 2025 that have the ability to generate lucrative returns over the long term.

PersonalFN’s “The Strategic Funds Portfolio for 2025” is geared to potentially multiply your wealth in the years to come. Subscribe now! 

Happy Investing!


Author: PersonalFN Content & Research Team