Mutual Funds: This investment trick will help you earn more while investing in large caps

As per money experts, index investing is the simplest and most cost-effective way to invest in large-cap funds for retail investors. The best part of this approach is that investors do not have to bother about timing the market and can start whenever they are ready after covering their basics.

Start with index funds, suggest experts

“Index funds charge much lower expense ratios, i.e., 0.3%-1.5%, than actively managed mutual funds. Since these funds mimic their benchmark index, there is no significant difference in the performance of two funds tracking the same benchmark, except for the tracking error. While deciding to invest in an index fund, investors can choose a fund house that offers the lowest expense ratio and tracking error,” Ajinkya Kulkarni, Co-Founder and CEO, Wint Wealth.

While investing in large-cap funds it is better to allocate the majority of your allocation through the passive route, suggested Mukesh Kochar, National Head – Wealth, AUM Capital.

Why large-cap funds find it difficult to beat benchmark indices?

There is little room for the fund manager to outperform the index by a wide margin and the predictability of sectors is very difficult. Exceptions are always there though. So better to allocate the majority of your large-cap allocation through NIFTY ETF or Index fund and a small portion can be allocated to funds that take some deviation from the index weightage, added Mukesh.

How to get exposure to India’s top 100 listed companies?

As per Ajinkya Kulkarni, depending on their risk appetite, investors can either go with a Nifty 50 index fund or a combination of Nifty 50 and Nifty Next 50 fund to get exposure to India’s top 100 listed companies.

Who should invest in large-cap Mutual Funds?

One should only start investment in large-cap mutual funds if the goal is at least five years away. “Even while investing in large-cap funds, the market may undergo up-and-down cycles. Investors must stay patient with their chosen index fund to let the compounding have its full effect,” said Kulkarni. 

Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before making any investment decisions.

Updated: 01 Sep 2023, 12:14 PM IST