Large-Cap Funds: What Are They, Importance, Features, And More
February 16, 2024
Equity mutual funds are difficult options to invest in. This is because, with equity mutual funds, you will need to choose the right combination of stocks, good performance, and quality fund managers. This process is difficult to execute. Furthermore, you must also consider market capitalization. This is where the importance of large-cap funds comes into play.
In this article, you will learn about large-cap mutual funds as a category of mutual fund types. Apart from that, we will also discuss the major features of large-cap funds in general. Furthermore, we will also share with you the major benefits of investing in large-cap mutual funds. Finally, you will learn about how mutual funds invest in large-cap companies. Hence, to learn more, read on through to the end of the article.
What Are Large-Cap Funds?
In general, large-cap funds are a type of equity mutual fund where you can invest a bigger portion of your total assets in companies having large market capitalization. You need to understand that a large-cap company is the one which is well-established in the market.
According to Investopedia,
“Large-cap (sometimes called “big cap”) refers to a company with a market capitalization value of more than $10 billion. Large cap is a shortened version of the term “large market capitalization.” Market capitalization is calculated by multiplying the number of a company’s shares outstanding by its stock price per share. A company’s stock is generally classified as large-cap, mid-cap, small-cap, or micro-cap.”
In the United States, 98.5% of the total equities market consists of large-cap stocks. These include companies having a minimum of $25 million float-adjusted market cap.
The following are some of the major large-cap stocks in the United States you need to learn about:
1. Apple Inc. (AAPL)
2. Microsoft Corporation (MSFT)
3. Alphabet Inc. (GOOG)
4. Amazon.com, Inc. (AMZN)
5. NVIDIA Corporation (NVDA)
6. Meta Platforms, Inc. (META)
7. Berkshire Hathaway, Inc. (BRK.A)8. Tesla, Inc. (TSLA)
Hence, you can see that large-cap funds invest a large portion of their total assets in companies that have big market capitalization. These companies are large companies, have an excellent track record, and have a high reputation. They are known for generating wealth for their investors time and again.
What Are The Major Features Of Large-Cap Funds?
According to the Forbes Advisor,
“Large-cap stocks have lower growth prospects than their small- and mid-cap counterparts that are still expanding their market share. The tradeoff is that large-cap stocks are less risky and less prone to wild swings in their stock prices. As a result, large-caps are considered to be a more conservative investment choice than either small- or mid-caps.”
The S&P 500 is the primary benchmark for large-cap stocks. The S&P is an index that ranks the top 500 large-cap companies. These companies include publicly traded businesses across different sectors in the United States. Apart from that, there are other indices like the Dow Jones Industrial Average and the Nasdaq Composite.
In their respective industries, large-cap companies are dominant and well-established. However, this does not mean that large-cap companies need to be old. For example, companies like Tesla, Meta, etc., are not ancient but have large market capitalization.
The following are some of the major features of large-cap funds:
- The net asset value (NAV) of large-cap funds does not fluctuate a lot as per market conditions. Hence, it is a stable investment option for many investors.
- These are long-term investment options since they have slow growth and, hence, slow returns. Hence, investors need to have patience.
- There is a reasonable amount of risk in large-cap mutual funds. However, they still offer stable returns to investors.
Major Benefits Of Investing In Large-Cap Funds
According to the Motley Fool,
“While many investors consider smaller, fast-growing companies to be more exciting, large-cap stocks can be very profitable opportunities for investors who take the time to understand them. […] Their principal advantage is that they are a safer investment since they are more established than smaller companies and have competitive advantages and more reliable profit streams.”
The following are some of the major benefits of investing in large-cap mutual funds:
- Large-cap stocks have a high reputation in the market and have become household names for their quality services.
- If you want to benefit from overall gains in the market, a large-cap fund can balance out the risk of individual stocks.
- These stocks recover sooner after their downfall. This is because these companies are better suited and equipped to change market conditions.
- Large-cap companies are easier to analyze, as there is a plethora of information available almost everywhere. Hence, investors prefer to invest in those stocks.
- These companies can pay out high dividends since they have a good establishment in the market.
- These companies have stability in the market. Hence, large-cap mutual funds are less risky investments as compared to other options.
Hence, you can see that large-cap companies pose a better advantage for investors. This also includes better size and tenure. Furthermore, these funds also provide steady dividend payouts to shareholders. Apart from that, if there are variations in the type of stocks, there is full clarity.
How To Invest In Mutual Funds That Invest In Large-Cap Companies?
You must invest in large-cap mutual funds by submitting a duly filed application form. However, you must include a cheque or bank draft to the bank or the financial institution. Apart from that, you can also invest online by visiting the website of individual mutual funds. Furthermore, you will also need to carefully check mutual fund companies before you invest.
You can choose large-cap mutual funds if you want to think about your long-term financial goals. Also, these are easier ways to get access to expert professional management.
Wrapping Up
Hope this article was helpful for you in getting to learn more about large-cap funds. You can see from this article that large-cap mutual funds are stable and long-term investments. However, these are comparatively expensive. If you are thinking long-term, you must choose large-cap funds. Do you have more suggestions on those investments? Consider sharing them with us in the comments section below.
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