Want to invest in the best large & mid cap funds? Here's how the pros do it.

Large & mid-cap mutual funds comprise 35% large-cap stocks and 35% mid-cap stocks, with the rest of the corpus invested in small-cap stocks and debt instruments, providing the ideal balance between the stability of large-cap stocks and the growth of mid-cap and small-cap stocks.

fund managers

Mutual funds are a popular investment option for retail investors in India. Large & mid-cap mutual funds are specifically designed to invest in stocks of large and mid-sized companies. These mutual funds have a dedicated team of analysts who research and analyse stocks across various categories to identify the best investment opportunities.

One of the first steps in the stock selection process is to identify the investment universe. Large & mid-cap mutual funds invest primarily in stocks of the top 250 companies by market capitalisation. They invest 35% of the total corpus in large-cap stocks and another 35% in mid-cap stocks, with the rest being invested in debt instruments, small-cap stocks, and cash equivalents.

Also Read Types Of Mutual Funds And How To Start Investing In Them.

How do fund managers pick the right stocks?

  • Quantitative and qualitative factors

Once the investment universe is identified, the fund managers and analysts start to analyse the various stocks in this universe. They use various quantitative and qualitative factors to assess the stocks. Some quantitative factors considered include the company's financial health, earnings growth, dividend yield, and price-to-earnings ratio. Qualitative factors, such as the quality of management, business model, and industry trends, are also considered.

  • Diversification

One of the key challenges in picking the best stocks is to ensure that the portfolio is diversified across various sectors and industries. This is done to reduce the overall risk of the portfolio. Large & mid-cap mutual funds typically invest in stocks across various sectors, such as IT, healthcare, financial services, and consumer goods.

  • Stock valuation

Another important factor considered while picking stocks is the stock's valuation. Fund managers and analysts use various valuation techniques, such as discounted cash flow analysis, price-to-earnings ratio, and price-to-book value ratio, to determine if the stock is undervalued or overvalued. If a stock is undervalued, it is considered a good investment opportunity.

  • Macro-economic factors

Large & mid-cap mutual funds also consider macroeconomic factors, such as inflation, interest rates, and GDP growth, while making investment decisions. For instance, if the interest rates are expected to rise, it might hurt sectors such as real estate and auto. In such a scenario, the fund managers might avoid investing in the stocks of companies in these sectors.

  • Growth potential

Apart from the above factors, large & mid-cap mutual funds also consider the company's growth potential while making investment decisions. If a company has strong growth potential, it is considered to be a good investment opportunity. The fund managers and analysts also keep a close eye on the company's quarterly results and annual reports to assess the growth potential of the company.

Also ReadDon't Invest In Last Year's Best-Performing Funds: 7 Parameters To Check Before Selecting A Mutual Fund Scheme.

In conclusion, large & mid-cap mutual funds in India pick the best stocks across various categories using quantitative and qualitative factors. They also ensure the portfolio is diversified across various sectors and industries to reduce the overall risk. Fund managers and analysts use various valuation techniques to determine if the stock is undervalued or overvalued. They also consider macroeconomic factors and the company's growth potential while making investment decisions. Retail investors in India can benefit from investing in large & mid-cap mutual funds as they provide the stability of large-cap stocks, the growth potential of mid-cap and small-cap stocks and the safety of debt instruments.


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