The Mutual Fund Show: What A Large And Mid-Cap Scheme Offers To Investors

A large and mid-cap fund enables investors to diversify their portfolio while maintaining growth and stability.

"This sort of a fund is meant for investors who want to have exposure to both large and mid-cap funds than one fund itself, so that they don't have to do the asset allocations," Mrin Agarwal, financial educator and founder of Finsafe India, told NDTV Profit.

Large and mid-cap funds work for DIY investors, as they are in a dilemma on whether to invest in two separate funds or just one, she said.

"Large and mid-cap will be part of the core strategy only. So, we look at quite a lot of things when we add it in our portfolio. (It includes) ... the fund manager, the pedigree of the fund house, and also the traffic that the scheme has," said Himanshu Kohli, co-founder at Client Associates.

PGIM India Mutual Fund is launching a Large and Mid-Cap Fund NFO, which will invest largely in the securities of large-cap and mid-cap companies.

"You need to invest in at least 35% of the fine assets in large caps and at least 35% in mid caps, and the rest can be invested in other categories," said Vinay Paharia, chief investment officer of PGIM India Mutual Fund.

"The nature of this fund is to invest in large caps and mid caps, wherein large caps are bought for stability and mid caps are bought for growth," he told NDTV Profit.

The broad guideline for the fund is to maintain adequate diversification, involve lower churn, and have higher than active shares, Paharia said.

According to Agarwal, there is not much of a difference between the large and mid-cap and the multi-cap space when looking at the five-year and seven-year returns.

Sometimes investors look at NFOs more like IPOs, but there is a huge difference between both. "A lot of times clients do mistake that NFO is available at a lower price ... which is a huge misconception," Kohli said.

Explaining the construction of a model portfolio scheme in his firm, he said, "We look at the historical track record, what's the alpha creation ability of the fund manager, consistency of the alpha sharp ratio which the fund manager has delivered time and again." In addition to the above, the rolling three-year, five-year returns that the funds have delivered and their outperformance compared to the respective benchmark are also factors that are taken into consideration, Kohli said.

The success of any investor depends on the strategy of the asset allocation. "As per our model, the markets are slightly overvalued. If we talk in terms of PE multiples, it's overvalued to the extent of 4%," Kohli said.

Top picks for Agarwal include Canara Robeco Emerging Equities Fund, Quant Large and Mid Cap, and Kotak Equity Opportunities Fund.

Among the large and mid-cap funds, Kohli likes Quant Active Fund, Kotak Equity Opportunities Fund, and Mirae Asset Large Cap Fund. And, from among the portfolio management services and alternative investment funds category, his picks include Whitespace Equity Alpha+ and Abakkus AII Cap.