What is the difference between blue chip and large-cap?
Blue-chip funds, which focus on solid, financially strong corporations, give consistent and predictable returns, making them ideal for long-term investment strategies. Large cap funds and index funds, on the other hand, provide growth potential by investing in established companies that are publicly traded.
Large-cap companies usually have good track records. The market value (market cap) of these companies is significantly high. These are also called 'blue-chip stocks'. The market cap for these companies is around Rs.20000 crores and more, and they have a strong market presence.
A large-cap stock is generally considered to be the stock of a company with a market capitalization of more than $10 billion. A value stock is often considered underpriced based on fundamental analysis, often paying a relatively high dividend to shareholders and having a low price to equity (P/E) ratio.
Small-cap stocks and large-cap stocks both come with their own pros and cons. While small-cap stocks can generate higher returns, they also have a higher risk profile. Conversely, large-cap stocks witness smaller growth but are more stable. Investors should consider investing in both for a balanced portfolio.
As per the SEBI guidelines the companies are classified as: Large cap: Companies ranked between 1 and 100, when sorted by market capitalisation. Mid cap: Companies ranked between 101 and 250, when sorted by market capitalisation. Small cap: Companies ranked beyond 250, when sorted by market capitalisation.
And based on the market cap, the company is either categorized under small cap, mid cap, or large cap respectively. The first 100 companies ranked according to their market capitalization by the stock exchanges are known as large cap companies.
Blue Chip stocks typically have higher liquidity, meaning there's more trading activity and it's easier for investors to buy and sell shares without significantly impacting the stock price. Small-cap stocks may have lower liquidity, leading to wider bid-ask spreads and potentially higher trading costs.
Large-cap companies are well-established businesses with a significant market share, like market caps of ₹20,000 crore or more.
- 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.
Lower risk: Compared to mid-cap and small-cap funds, large-cap funds invest in well-established companies with larger market capitalizations. These companies tend to be more financially stable and resilient to market fluctuations, offering a lower overall risk profile.
Should I invest in large-cap or small-cap?
Large-cap companies are typically more stable, with established technologies, substantial cash reserves, and a proven track record. While small caps have the potential to outperform in a declining scenario, the higher risk associated with them should be carefully considered by investors.
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.
Are Large Cap funds safe? Large Cap funds are relatively safer form of equity investments as they are known to withstand bear markets. With a good investment horizon, Large Cap funds can deliver sound and stable returns.
large-cap: market value between $10 billion and $200 billion; mid-cap: market value between $2 billion and $10 billion; small-cap: market value between $250 million and $2 billion; and. micro-cap: market value of less than $250 million.
If she is a conservative investor and is unwilling to take on much risk, then large caps are advisable. She must only consider investing in mid and small caps if she is willing to take high risk to earn higher returns and has a longer investment horizon, so as not to be tormented with the short-term volatility.
A large-cap company has a market capitalization of over $10 billion. A mid-cap company has a market capitalization between $2 billion and $10 billion, and a small-cap company has less than $2 billion in market capitalization.
The fund name 'Bluechip fund' and 'large-cap fund' are used interchangeably because they both refer to those equity mutual funds that invest in stocks of large-cap companies listed on the stock exchanges.
Chance and Unpredictability: Blue Chip: For the most part viewed as safer because of their layout, areas of strength for history, and bigger market presence. Their stock costs will generally be less unstable. Mid-Cap: More unpredictable than blue chips however less so than little cap stocks.
Examples of such large-cap funds include Axis Bluechip Fund, SBI Bluechip Fund, ICICI Prudential Bluechip Fund, etc. Similarly, all bluechip funds are actively managed. They invest in the top 100 companies by market cap.
| No. | Symbol | Market Cap |
|---|---|---|
| 1 | ABT | 193.49B |
| 2 | GE | 193.12B |
| 3 | QCOM | 190.67B |
| 4 | TMUS | 190.41B |
How risky are large-cap stocks?
The tradeoff is that large-cap stocks are less risky and less prone to wild swings in their stock prices. As a result, large-caps are considered to be a more conservative investment choice than either small- or mid-caps. The primary benchmarks for the large-cap market are: S&P 500 Index.
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.
When investors select their stocks, they must decide between risk and reward. Large-cap stocks usually belong to large, established companies and are safer investments than small- or mid-cap stocks.
The best time to buy a stock is when an investor has done their research and due diligence, and decided that the investment fits their overall strategy. With that in mind, buying a stock when it is down may be a good idea – and better than buying a stock when it is high.
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.
