Add stability to your MF portfolio with large-cap exposure

5paisa Research Team

Last Updated: 23rd November 2021 - 05:33 pm

Large caps tend to fall less when compared with mid-cap and small-cap funds. Hence, provides some downside protection to your portfolio. Read on to find out more.

Large caps that are usually termed blue chips offer great downside protection when compared with mid-caps and small-caps. However, the returns provided by them during a rally is less when compared to midcaps and small-caps. This is the reason why most investors shy away from investing in large caps as they provide lower returns. In this article, we have explained what are large-cap funds and how they can help cushion your equity portfolio when the equity market is not so exciting.

What are large-cap funds?

As defined by the Securities and Exchange Board of India (SEBI), large-cap funds are those which should dedicate a minimum of 80% of their assets to the top 100 stocks in terms of full market capitalization.

Comparison between large, mid and small-cap

To compare the three, we have taken Nifty 100 Total Returns Index (TRI), Nifty Midcap 150 TRI and Nifty Smallcap 250 TRI as the representative of large-cap, mid-cap and small-cap funds, respectively. The period for comparing is from November 21, 2011, to November 22, 2021.

Indices	Average Rolling Returns (%)
Indices	1-Year	3-Year	5-Year
Nifty 100 TRI	16.00	12.96	12.94
Nifty Midcap 150 TRI	22.05	17.37	17.61
Nifty Smallcap 250 TRI	21.05	13.84	14.14

As we can see from the above table that, mid-caps and small-caps indeed perform better than large-caps in terms of rolling returns. The purpose of using rolling returns is that it gives a better picture than trailing returns. However, only looking at returns tells you the half story. Hence, it makes sense to also look at risk metrics.

Indices	Risk Metrics
Indices	Standard Deviation (%)	Sharpe Ratio	Sortino Ratio	Maximum Drawdown (%)
Nifty 100 TRI	16.87	0.94	1.17	-37.92
Nifty Midcap 150 TRI	17.45	1.26	1.50	-43.06
Nifty Smallcap 250 TRI	18.89	1.11	1.29	-59.78

The above table clearly shows that in terms of risk as measured by standard deviation and maximum drawdown, large-caps pose relatively less risk than that of mid-caps and small-caps. Therefore, having a large-cap exposure in your portfolio would help you to contain the downside risk to some extent rather than just investing in mid-caps and small-caps. Moreover, it is prudent to access your risk profile, as it would help you decide the appropriate asset allocation.

Below is the list of top five large-cap funds

Fund Name	Trailing Returns (%)
Fund Name	1-Year	3-Year	5-Year
Axis Bluechip Fund	32.36	21.60	20.34
Canara Robeco Bluechip Equity Fund	35.02	22.26	19.35
BNP Paribas Large Cap Fund	32.96	20.34	17.07
Kotak Bluechip Fund	38.64	21.05	17.04
IDBI India Top 100 Equity Fund	40.70	21.02	15.84

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