On a yearly basis, the category saw a jump of 647% in the inflows, the highest among all diversified equity categories. The category received an inflow of Rs 357 crore in April 2024. Apart from diversified mutual fund categories, sectoral and thematic funds saw a jump of 1,076% in the monthly inflows.
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The experts attribute this month-on-month jump to safety and stability which large cap mutual funds provide in the volatile market as their higher liquidity and lower volatility make them a preferred choice when investors become cautious.
“This is mainly driven by a shift in investor sentiment towards safety and stability. Large-cap funds, which focus on blue-chip companies, are perceived as more resilient during volatile or uncertain market conditions. Their higher liquidity and lower volatility make them a preferred choice when investors become cautious,” said Hrishikesh Palve, Director, Anand Rathi Wealth.
Another expert says that the large cap funds are attracting inflows due to their relative stability, better corporate earnings, and more attractive valuations compared to mid and small-caps.
“These factors, along with global uncertainties, have led investors to prefer the safety and visibility offered by large-cap companies, while other diversified categories have seen a month-on-month moderation in flows amid valuation concerns and profit booking,” said Sagar Shinde, VP of Research at Fisdom.
On a monthly basis, the other diversified equity mutual funds saw drops ranging between 1% to 151%. ELSS or tax-saving mutual funds saw a drop of 151% as the category witnessed an outflow of Rs 372 crore in April against an inflow of Rs 735 crore in March.
Flexi cap funds, the category which received the highest inflow in April of Rs 5,541 crore, saw a decline of 1% on monthly basis from an inflow of Rs 5,615 crore in March.
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A deep dive into the data of inflows by Association of Mutual Funds in India (AMFI) showed that in March, large cap funds was the only category among diversified mutual fund categories to see a drop in monthly responses. In March, the inflows dropped by 13% from an inflow of Rs 2,866 crore in February to Rs 2,479 crore in March.
Shinde firmly believes that this 8% month on month surge likely reflects a shift in sentiment toward safer, more predictable equity segments and he also recommended that in the current market environment, increasing allocation to large caps can be a prudent move, especially for conservative investors or those looking to rebalance portfolios after strong gains in riskier segments.
As the category witnesses a surge in inflows, Palve believes that in the times of heightened market volatility, it is very common for investors to move towards stable categories such as large-cap, as these categories offer stability & reduce overall portfolio volatility during turbulent periods.
He also recommends that it is recommended for investors to build a strategy-based portfolio by diversifying the portfolio across the categories, such as market-cap-based funds and strategy-based funds, such as focused and value funds, as these will help to maintain stability and reduce overall portfolio volatility and additionally, it is recommended to follow a market cap mix of 55:22:23 across large, mid, and small caps.
In April, the large cap funds offered an average return of 4.35% with Invesco India Largecap Fund being the topper which delivered 6.30% return in the same period. Samco Large Cap Fund lost the most of around 0.51% in the same period.
On the other hand, mid cap and small cap funds gave an average return of around 3.81% and 2.01% respectively in April. In March, mid cap funds topped the average return chart among these three categories and gave an average return of 7.74%, followed by small cap funds which gave an average return of 7.66% and then large cap funds which gave an average return of 6.73% in the same period.
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With the category attracting more inflows, Shinde is of the opinion that while some of the inflows may be driven by near-term macro uncertainty, the trend could sustain if market volatility persists and the outlook for large-cap funds remains constructive, backed by steady earnings growth and valuation comfort relative to mid and small-caps.
After looking at the performance and inflows, Palve is of the opinion that the shift is likely to be temporary, and it is mainly driven by a series of global uncertainties such as U.S. elections, tariff tensions, Russia-Ukraine war escalations, and Indo-Pak geopolitical tensions and historically, markets have shown resilience, with long-term performance driven more by corporate earnings and valuations than by short-term geopolitical shocks.
“Going forward, we are seeing the large-cap category grow at 12 to 13% CAGR. Currently, the valuations are reasonably placed with negative froth; however, it is not recommended to invest solely in a single market cap or category. Investors should diversify across the market caps with a market cap mix of 55:22:23 across large, mid, and small caps,” he added.Large-cap funds invest at least 80% of their assets in a large-cap company which is ranked from 1st to 100th on the Indian stock exchanges in terms of market capitalisation, with the flexibility to invest the balance 20% in other companies as per the discretion of the fund manager.
If you are looking for recommendations, see:
Best large cap mutual funds to invest in May 2025
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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