IN THE VAST and ever-evolving realm of investment opportunities, investors are often presented with a spectrum of choices. Among these, the large- and mid-cap category stands out as a nuanced and strategic option, offering a blend of stability and growth.
Large-cap: The pillar of stability
Large-cap, short for large capitalisation, are companies that form the top 100 companies in the average market capitalisation. The list for the same is published on the AMFI website every six months. Market capitalisation is calculated by multiplying the company’s current stock price by the total number of outstanding shares. These companies are often industry leaders, characterised by their stability, established market presence and significant market share.
Investing in large-cap stocks provides a degree of stability that appeals to risk-averse investors. These companies are generally well-established, with a proven track record of weathering economic downturns. They often also have a global presence, diversified revenue streams and the financial strength to withstand market fluctuations.
Mid-cap: The sweet spot of growth
Mid-capitalisation companies are the 101 to 250 of the largest companies on the stock exchange. Mid-cap stocks represent a diverse group of companies that have outgrown their small-cap status but are still in the growth phase.
Mid-cap stocks are often seen as the sweet spot for growth-oriented investors. These companies, while not as established as their large-cap counterparts, have the potential for substantial expansion. They are agile, responsive to market trends and have the capacity to capitalise on emerging opportunities.
The power of combination
The large- and mid-cap category is a strategic fusion of both large-cap and mid-cap stocks. Herein, the fund manager must maintain large-cap and mid-cap exposure at a minimum of 35 per cent each.
In times of economic uncertainty or market downturns, large-cap stocks act as a stabilising force. Meanwhile, mid-cap stocks contribute to the portfolio’s overall growth potential, ensuring that investors are not solely reliant on established giants but are also positioned to benefit from the dynamism of mid-sized, high-potential companies.
Why you should invest in large- and mid-cap
The large- and mid-cap category caters to a broad spectrum of investors, each with distinct preferences and risk appetites. For example, investors enthusiastic about diversifying their portfolios across market caps and sectors can leverage the large- and mid-cap categories to achieve a well-rounded mix.
Next, investing in this category can help an investor ride out market cycles, capitalising on both stability and growth over an extended period. However, the caveat here is that these investments should be made at least with an investment horizon of five-plus years.
Furthermore, this category offers a comprehensive solution that caters to a diverse range of long-term investment objectives such as creating a corpus for retirement, child’s education or marriage.
Taxation
When you decide to redeem the units of your large- and mid-cap fund, you realise that capital gains are subject to taxation. The applicable tax rate, however, hinges on the duration of your investment in the fund, commonly referred to as the holding period. Capital gains accrued during a holding period of less than one year are termed short-term capital gains (STCG) and are subject to a tax rate of 15 per cent.
Conversely, capital gains acquired from a holding period exceeding a year fall under long-term capital gains (LTCG). As per the current regulations, gains surpassing Rs1 lakh incur a tax of 10 per cent without any benefit from indexation.
There are 26 offerings with a total asset under management of Rs1.75 lakh crore in this category. Within these, one of the consistent performers with over two decades of track record is ICICI Prudential Large & Midcap Fund. Over the last three years, the fund has delivered returns of 20.56 per cent and 27.66 per cent compared to its benchmark, which delivered 19.92 per cent and 23.34 per cent.
Deepesh Mehta is founder, Happy Investor Finserv LLP