Should I invest more in large-cap or mid-cap?
Large-cap funds are less risky than small and mid-cap funds. Small and mid-cap funds have higher growth potential than large-cap funds. Large-cap funds are good for conservative investors. Mid and small-cap funds are suitable for medium-risk takers to aggressive investors.
Large caps tend to be more mature companies, and so are less volatile during rough markets as investors fly to quality and become more risk-averse. Shares of small caps and midcaps may be more affordable for investors than large caps, but smaller stocks also tend to have greater price volatility.
Large-cap stocks are generally considered to be safer investments than their mid- and small-cap stock counterparts because they are larger, more established companies with a proven track record. Some of the biggest names in business are large-cap stocks – Apple, Microsoft and Alphabet, for example.
The decision to invest in large-cap funds hinges on your circ*mstances and investment objectives. Although large-cap funds may present lower potential returns compared to smaller companies, they have the potential to deliver consistent and stable growth over the long term.
Profit growth for the S&P 500 is estimated to be 12% in 2024 after tracking slightly down in 2023. Mid-caps are expected to post 8% y/y growth in 2023 and 2024, while small caps are anticipated to rebound from profit declines of 10% in 2023 to 23% growth in 2024.
Large-Cap Funds:
Large-Cap Funds are considered relatively more stable because the companies are typically reputable, trustworthy, and well established in the market. These are mostly market leaders and well-known brands with a good performance track record over the medium to the long-term investment horizon.
Aggressive Investor: A risk-taking investor can think about investing 50–60% of their portfolio in large-cap stocks, 15–25% in mid-cap stocks, and the remaining 15–25% in small-cap stocks. By combining large-cap funds, flexi-cap/large mid-cap funds, midcap funds, and smallcap funds, this can be accomplished.
Large-cap stocks tend to be companies that are established in their markets with long-term histories. Some feel this makes them “safer” to invest in. Larger company stocks also often pay dividends, allowing you to capture some of the return of your investment, which some investors view as a benefit.
- Slower growth: Large-cap stocks may not offer the same growth potential as smaller companies, limiting potential capital appreciation.
- Market saturation: As large-cap companies are already well-established, finding undervalued opportunities can be challenging.
If you are a risk-averse investor but want to benefit from equity investments, then large cap equity funds are the best option available to you. Since these schemes invest in financially strong large cap companies, they can withstand a slowdown in the markets.
Why not to invest in large-cap stocks?
Growth Potential: While large-cap stocks may offer stability and income, they may not have the same growth potential as smaller companies. Investors looking for high-growth opportunities may need to consider smaller-cap or mid-cap stocks that have greater potential for expansion but also come with higher risks.
Aggressive investors: An aggressive investor can consider about 50-60 percent allocation to largecaps, 15-25 percent to midcaps and the remaining 15-25 percent to smallcaps.
To find an appropriate investment mix for your time horizon, find your age and the corresponding portfolio allocation. A typical mixture could include 60% large-cap (established companies), 20% mid-cap/small-cap (small to medium-sized compa- nies), and 20% international (companies outside the U.S.) stocks.
Advocates say these companies offer financial stability, growth potential and industry diversification, and could outperform in 2024. Midcap stocks are like the middle children of the investing world, sometimes ignored by investors who focus on their large-cap and small-cap siblings.
You should invest in these schemes only if you have very high risk tolerance. You should also have a longer investment horizon of, say, seven to 10 years. A longer investment horizon would help investors to navigate the volatility better.
| Fund Name | Fund Category | 5 Year Return (Annualized) |
|---|---|---|
| Mahindra Manulife Multi Cap Fund | Equity | 25.45 % p.a. |
| Nippon India Multi Cap Fund | Equity | 21.45 % p.a. |
| Quant Active Fund | Equity | 30.31 % p.a. |
| ICICI Prudential Multicap Fund | Equity | 19.43 % p.a. |
| S.No. | Name | 3Yrs return % |
|---|---|---|
| 1. | Nestle India | 14.34 |
| 2. | Colgate-Palmoliv | 21.46 |
| 3. | Coal India | 49.94 |
| 4. | Castrol India | 18.79 |
The common rule of asset allocation by age is that you should hold a percentage of stocks that is equal to 100 minus your age. So if you're 40, you should hold 60% of your portfolio in stocks. Since life expectancy is growing, changing that rule to 110 minus your age or 120 minus your age may be more appropriate.
The 120-age investment rule is a theory directing investors to keep a higher allocation of riskier investments for longer. This approach helps build more wealth over time, which is critical for the increased average lifespan of retirees.
Indeed, a good mix of equities (yes, even at age 70), bonds and cash can help you achieve long-term success, pros say. One rough rule of thumb is that the percentage of your money invested in stocks should equal 110 minus your age, which in your case would be 40%. The rest should be in bonds and cash.
Is Apple a large-cap stock?
Some examples of large cap stocks include Apple, Amazon, Wal-Mart Stores, and Exxon Mobile. The investing prospectus for the stock or mutual fund you are researching should state if a stock is large-, mid-, or small-cap. You also can check yourself by using the market capitalization value formula.
The risk involved in mid-cap funds is slightly higher than in large-cap funds. This is suitable for investors who are moderately risk-tolerant with a long-term investment horizon. These are best for short-term investors. Aggressive investors with high-risk tolerance can go for these funds.
Large companies fare better in a volatile market as these companies may be market leaders and resilient to downturns. That is why if you are looking for a relatively safer mutual fund category, you should consider investing in large cap funds.
Moving on to large-cap stocks, these represent companies with significant market capitalization, often leaders in their respective industries. Large-caps are traditionally perceived as safer investments, providing stability and consistent returns.
| Name | Price | Analyst Price Target |
|---|---|---|
| CMCSA Comcast | $41.81 | $52.00 (24.37% Upside) |
| DIS Walt Disney | $122.82 | $126.32 (2.85% Upside) |
| RHHBY Roche Holding | $31.38 | $38.00 (21.10% Upside) |
| KO Coca-Cola | $60.15 | $65.80 (9.39% Upside) |
