Large cap funds have the ability to limit the downside risk during the volatile market scenario
Investors opting to invest into equity diversified funds often get
tempted by the high returns generated by the midcap equity funds, but
their returns are highly volatile. On the other hand, large cap equity
funds which invest into large cap firms provide stability to the
investors' portfolio because their returns are relatively less volatile
to the movement of the equity markets. When the markets tend to do
well, the returns of large cap funds may not increase as rapidly as
midcap funds, neither fall as badly when market reverses. Investing in
this category of funds for a longer term not only provides equity
exposure but also limits the risk arising from the volatile market. In
the prevailing market volatility, a large-cap exposure may be well
advised, as such stocks might provide better revenue and earnings
visibility compared to mid sized and smaller companies. Such stocks may
also be the first to turn around in the event of a market recovery.
Large cap equity diversified funds often known for investment into well
researched stocks invests into fundamentally sound scripts, which
reduces volatility and stabilize the returns. Large cap funds have the
ability to limit the downside risk during the volatile market scenario.
Analysis has been carried out to find the top performing large
cap equity funds based on 3 year return. The key findings from the
analysis of the top performing funds is that, they have shown
consistency by delivering returns above their benchmark over 1 year, 3
year and 5 year time period. Moreover, their corpus has surged for the
period from May 2009 to April 2010.
On the other hand, among the 38 large cap funds according to Capital
Market classification, there are 13 funds with corpus excess of Rs 1000
crore as at the end of March 2010, which is a clear indication that the
inflows from investors over a period of time had led to surge of corpus
of the funds. HDFC Top 200 Fund had the maximum corpus of Rs 6858.84
crore and Escorts Growth Plan had the lowest corpus of Rs 4.13 crore as
at the end of March 2010. The average return from this category of fund
is 54.41%, 9.74% and 22.11% over one, three and five year time period.
30 schemes in this category have outperformed the broad market
indicator BSE Sensex over 3 year time period.
HDFC Top 200 Fund is the biggest fund in the category and at the
same time it has been the top performing fund over 3 year time period
with a return of 17.77%. The investment strategy of the scheme is to
primarily restrict the equity portfolio to the BSE 200 index scripts to
reduce the risks while maintaining steady growth. The scheme has
consistently outperformed its benchmark index "BSE 200" over 1 year, 3
year and 5 year time period. HDFC Top 200 Fund has beaten its benchmark
by 10.47%, 9% and 8.23% over 1 year, 3 year and 5 year time period. It
had been allocating 94.65% on average into equity instruments over one
year period (May 2009 to April 2010). The scheme which had a corpus of
Rs 3314.58 crore in May 2009 has increased to Rs 7219.50 crore in April
2010. This scheme has been a long term return generator for its
investors. At the same time the scheme has a long term track record by
being into existence for the past 13 years. This fund may be more
suitable for investors who value consistent performance rather than
high absolute returns..
Templeton India Growth Fund
Templeton India Growth Fund has shown consistency by delivering
returns above its benchmark "BSE Sensex" over 1 year, 3 year and 5 year
time period. It has been able to outpace its benchmark by 27.41%,
10.02% and 3.80% over 1, 3 and 5 year time periods. This scheme adopts
a long term disciplined approach to investing and use value investing
philosophy. The fund had been allocating 91.59% on an average into
equity instruments over one year period (May 2009 to April 2010). The
scheme which had a corpus of Rs 339.80 crore in May 2009 has increased
to Rs 586.53 crore in April 2010.
HDFC Equity Fund
HDFC Equity Fund one of the large cap focused fund of HDFC Mutual
Fund has delivered return above its benchmark "S&P CNX 500" over
long term time period. It is evident from 1 year, 2 year and 3 year
returns as the scheme has outperformed the benchmark index by 30.22%,
9.10% and 9.35% over the period said above. In order to provide long
term capital appreciation, the scheme invests predominantly in growth
companies. It had been allocating 97.37% on average into equity
instruments over one year period (May 2009 to April 2010). The scheme
which had a corpus of Rs 3780.85 crore in May 2009 has increased to Rs
6187.09 crore in April 2010.
Outlook
Large Cap Equity Funds look at long term capital appreciation by
investing into growth oriented stocks. Moreover, they focus on
outperforming their benchmark over long term period. The good thing
about large cap funds is that they can form the core holding of any
portfolio, someone who is averse to taking risks (a very small
percentage of the portfolio can be invested in large cap funds) to
another who is open to an aggressive tilt. So if an investor dosent has
exposure to a large cap funds, they can certainly consider it. And, if
investors have no equity exposure at all, it would be a wise thing by
start investing into large cap equity funds. Preferably a systematic
investment plan can be adopted to generate good returns over a long
period. Though the large-cap category is known to offer better
protection to investors in the downturn, there are exceptions to this
rule. Investors who are more aggressive might get dissatisfied with the
returns in comparison with midcap funds or any other thematic fund.
Adding large cap equity funds would add stability to the investor's
portfolio from volatility from the equity markets, over a long period
of time.
