Stability over hype: Large-cap funds lead investor flow with 647% annual surge

Large cap mutual funds continue to be a preferred choice among investors—even during market corrections—owing to their perceived stability and exposure to fundamentally strong, blue-chip companies. 

The latest data from AMFI shows a 3.2% decrease in net inflows into equity mutual funds in April, totaling Rs 24,269.26 crore. Investor sentiment within the equity mutual fund sector appeared to shift during this time, with midcap and smallcap fund categories experiencing a decrease in inflows, while largecap funds saw an increase in interest.

Midcap and smallcap funds saw inflows dip by 3.6% and 2.3%, respectively. Meanwhile, large-cap funds bucked the trend with a 7.8% rise in investments to Rs 2,671.46 crore.

Large-cap funds

As per the Sebi mandate, large cap mutual funds are required to invest in the top 100 companies based on market capitalization. Larger companies tend to perform better in volatile markets as they are often market leaders and more resilient during downturns. Therefore, if you are seeking a relatively secure mutual fund option, you may want to consider investing in large cap funds.

The category experienced a 647% increase in inflows on a yearly basis, the largest among all diversified equity categories. In April 2024, the category received an inflow of Rs 357 crore. In addition to diversified mutual fund categories, sectoral and thematic funds also saw a significant increase of 1,076% in monthly inflows.

What does the trend say

An analysis of inflow AMFI data revealed that in March, large cap funds were the sole diversified mutual fund category to experience a decrease in monthly inflows. In March, inflows decreased by 13% from Rs 2,866 crore in February to Rs 2,479 crore.

In the current market environment, large caps are considered fairly valued, making them an attractive option for those seeking growth with relatively lower risk compared to mid and small cap counterparts. Their resilience and capacity to weather economic uncertainties appeal to both new and seasoned investors.

However, it’s important to recognise that performance across mutual fund categories tends to be cyclical. While large caps are leading now, a shift toward mid and small caps could unfold as market dynamics evolve. 

“Large-cap funds have been attracting vast investor attention as they appear fairly valued in the context of the current market. Large Cap funds have exposure to large companies and hence their underlying strength attracts investors for the growth potential and relative stability. However, even category performance can be cyclical in nature,  and the upward trajectory of large caps could give way to a run-up in the mid and small cap funds over time. Hence, we believe that one must stick to a goal-based asset allocation plan and be disciplined while investing. Categories will go through multiple cycles, however, discipline will always outperform sentiment,” Mayank Bhatnagar, Co-founder &CEO, FinEdge, told Business Today. 

Investing in large-cap funds

Bhatnagar added investors frequently seek out well-established stocks at reasonable valuations in order to enhance their returns. Surprisingly, following this strategy based on short-term market sentiments can actually hinder wealth accumulation. 

Long-term investing requires experiencing multiple market cycles, spanning various sectors, categories, and asset types. Rather than reacting impulsively to market fluctuations, the key is to remain invested and focused on achieving one’s financial objectives.

“While large cap funds are often perceived as relatively stable due to their exposure to top-tier companies, it is crucial for investors to remember that like any equity fund they would be subject to market volatility. The presence of large companies by valuation does not eliminate the risk of short-term volatility. We believe that investors must align such investments with their long-term goals and investing horizons. Large cap funds should ideally be held for a minimum of five years to allow market cycles to play out,” Bhatnagar suggested.

He added investors trying to time entries and exits based on short-term movements is rarely effective and often counterproductive. Volatile markets should be seen as opportunities to stay consistent and disciplined with your investments. Ultimately, it’s not about avoiding volatility, but learning to navigate it smartly through a goal-based approach that keeps you on track despite market noise.

Which funds to choose

Despite choppy market conditions, several large-cap mutual funds have delivered consistent returns across short- and long-term horizons, offering investors a stable avenue in FY2025–26. According to the latest performance data, schemes such as Invesco India Largecap Fund – Direct Plan, Kotak Bluechip Fund – Direct Plan, and Motilal Oswal Large Cap Fund – Direct Plan have emerged as top performers based on 1-month, 6-month, and 1-year returns.

Invesco India Largecap Fund leads with a strong 1-month return of 9.10% and a 1-year return of 12.29%, showing resilience despite mid- and small-cap turbulence. Meanwhile, Motilal Oswal Large Cap Fund has posted a stellar 28.89% gain over one year, making it a standout performer among its peers. Kotak Bluechip Fund continues to be a steady choice with a 13.17% annual return and solid performance across shorter tenures.

Source: Value Research