Who should invest in a large-cap fund?

Summary: Looking for a steady start to equity investing? Large-cap funds offer stability, consistency and peace of mind. This article explains how they’ve performed and why they could be the right fit for your core portfolio, especially if you’re in it for the long haul.

When you’re just beginning your mutual fund journey, the big question always comes up: Where do I start?

For many investors, the answer often points to large-cap funds. And honestly, it’s not without reason.

What are large-cap funds?

Large-cap mutual funds put your money in the top 100 listed companies in India by market capitalisation. Think Reliance Industries, HDFC Bank, Infosys or ITC. These are not fly-by-night players. They’re businesses with strong balance sheets, reliable earnings and long track records.

By SEBI’s mandate, at least 80 per cent of a large-cap fund’s portfolio must sit in these top 100 companies. That rule itself adds a layer of relative stability, unlike mid- or small-cap funds that swing more wildly.

How have large-cap funds performed?

Over the long term, large-cap funds have delivered respectable returns. In the last 10 years, they’ve clocked an average annual return of 12.6 per cent.

However, there's a twist when it comes to actively managed large-cap funds. These funds aim to beat their benchmark (like the BSE 100 TRI) by picking a better-performing basket of stocks. But that’s becoming harder to do.

In 2015, nearly 72 per cent of actively managed large-cap funds outperformed their benchmark on a five-year rolling return basis. By mid-2025, that figure has slumped to just 25 per cent. Since the start of 2025, only three out of 33 active large-cap funds have beaten the BSE 100 TRI.

Active vs Passive: What’s the difference?

This dip in outperformance has reignited the active vs passive debate in large-cap investing.

• Active large-cap funds are run by professional fund managers who try to beat the benchmark through research and stock-picking. This approach involves higher expense ratios due to fund management costs.
• Passive large-cap funds, such as index funds and ETFs, simply track an index like the Nifty 50 or BSE 100. They hold the same stocks in the same proportions as the index. And they do this at a much lower cost, since there is no active management.

In fact, at Value Research, out of the large-cap funds we currently recommend (under Analyst’s Choice), seven are passive index funds while only four are actively managed.

Why consider active or passive large-cap funds anyway?

Despite the hiccups, large-cap funds still have plenty to offer:

• You want stability with growth: Large-cap funds tend to fluctuate less than mid- and small-cap funds, making them a solid choice for your core portfolio. Over the past three years (as of July 31, 2025), the standard deviation (a measure of volatility) of an average large-cap fund was 13.47 per cent, compared to 15.46 per cent for mid-cap and 16.96 per cent for small-cap funds. Simply put, the lower the number, the less ups and downs your investment sees.
• Low cost: Don’t want to track every market move or company result? Passive large-cap index funds offer a simple, low-maintenance option. Since they just mirror an index like the Nifty 50, they don’t require constant fund manager intervention. And that keeps costs low. You save on fees while still staying invested in India’s top companies.
• Good for beginners: First-time investors often find large-cap funds easier to stick with, as large-cap companies are familiar names. 

Things to keep in mind

• Returns will likely be moderate: Don’t expect large-cap funds to deliver flashy returns. Over the last 10 years, they’ve delivered an average annual return of 12.6 per cent. That’s lower than mid-cap and small-cap funds, which averaged 16.7 and 17.7 per cent, respectively
• Fund selection matters: Not all large-cap funds are created equal. At Value Research, we track consistency, expense ratio and risk-adjusted performance to recommend only the best.
• Don’t over-diversify: You don’t need three or four large-cap funds. Since all large-cap funds pick from the same universe of top 100 companies, holding too many can lead to significant portfolio overlap. Instead, pick one solid performer and stay invested.

Final thoughts

If equity investing feels overwhelming or you’re simply looking for a reliable growth option, large-cap funds can be a great companion. They offer a smoother ride, let you participate in the India growth story through its biggest and best companies and help you build a solid foundation for your financial goals.

As always, match the fund to your risk appetite and investment horizon. And stay invested for at least five years to ride out market ups and downs.

At Value Research Fund Advisor, our analysts evaluate every fund for return consistency, cost efficiency and fund manager track record. Only those that meet our rigorous standards make it to our Analyst's Choice list.

Explore our carefully selected large-cap funds designed to offer stability, quality and the confidence to stay invested.

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This article was originally published on August 23, 2025.