The category of large-cap equity funds is the largest in terms of assets under management (AUM). With assets of over Rs 5 lakh crore, the category has over 30 per cent share of the total AUM of all equity fund categories taken together. Even if we exclude the biggest two large-cap funds which receive a bulk of equity investments of the Employees' Provident Fund Organisation (two ETFs from SBI Mutual Fund which manage Rs 1.8 lakh crore), the category remains the single largest with about a fifth of total equity assets under management. While the category is the most popular one among investors, it is also, by far, the most crowded one. It has (hold your breath!) as many as 132 constituent funds with another three due to be inducted in December. This is as per the Value Research classification system which clubs the actively managed, the passive as well as the focused funds investing in large-cap stocks into a single category. And going by the avalanche of fund launches in the passive space, the category can keep bloating in the coming months. But worry not. In this update, we cut through this clutter to help you choose the right ones, brief you on the changes to our recommendations and bring you up-to-speed on the latest trends. The investment case Large-cap funds are the most conservative lot among pure equity funds. They inherit this trait from the underlying stocks they invest in. The stocks of well-established businesses are usually the most resilient to not only equity market's ups and downs but also to the swings in business and economic cycles, hence providing stability to an investor's portfolio. But they are also expected to generate more modest returns vis-à-vis the smaller companies. Being more mature and stable businesses, they are generally not expected to turn into multi-baggers. But this conventional wisdom is not necessarily true for all big companies. Despite being well-established, many blue chip Indian companies have a long runway for growth. In fact their market leadership position only acts as a tailwind in their quest to grow bigger. Take for instance, companies like HDFC Bank, Maruti Suzuki, Asian Paints, Infosys or Titan, which despite being market leaders have generated returns at an average annual rate of over 20 per cent in the last 10 years. As suggested by graph 5-year rolling returns, while the mid-caps and small-caps have historically done better, they also fall more sharply when the weather turns rough. In any block of five years between 2011 and 2021, the returns of the BSE 100 have averag
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