Mutual fund managers are increasingly focusing on large-cap stocks through New Fund Offers (NFOs) in the realm of online mutual fund investment. This shift is driven by the fact that mid-cap and small-cap stocks are trading at elevated valuations, which makes them less appealing. In contrast, large-cap companies present more reasonable valuations and are considered safer investments due to their stable management and consistent performance. Consequently, many fund houses are rolling out large-cap-focused NFOs, offering investors through online platforms the chance to invest in these well-established and secure companies.
Recent NFOs in this space include offerings from major fund houses such as Bajaj Finserv Large Cap Fund, ITI Large & Mid Cap Fund, and DSP Nifty Top 10 Equal Weight ETF. Additionally, index funds and ETFs based on the Nifty500 Multicap 50:25:25, such as HDFC and Mirae Asset’s Nifty500 Multicap 50:25:25 Index Fund and ETF, have also gained traction. These funds are designed to allocate 50% of their investments into large-cap stocks, with 25% each directed towards mid-cap and small-cap stocks, offering a balanced portfolio.
Growing inflows into large-cap funds
The appeal of large-cap stocks is also evident in the rising inflows into these funds. Platforms such as Groww, a leading online mutual fund investment platform, have reported a notable increase in the share of inflows into large-cap funds compared to their mid-cap and small-cap counterparts. In August 2024, large-cap funds saw a four-fold increase in inflows, reaching Rs 2,636.86 crore. This growth reflects investors’ increasing appetite for stable, well-valued stocks amid a broader market where smaller-cap stocks have surged in value.
However, while large-cap funds have garnered significant attention, mid-cap and small-cap categories remain popular among investors. In fact, inflows into these categories in August were higher than those into large-caps, with Rs 3,209.33 crore flowing into small-cap funds and Rs 3,054.68 crore into mid-cap funds. This demonstrates that investors are still diversifying their portfolios, balancing their exposure across different market segments based on valuation and growth potential.
Balancing risk with large-cap investments
Market experts have highlighted that the shift towards large-cap funds is partly driven by the need to manage risk. With mid-cap and small-cap stocks experiencing significant gains in recent months, investors are keen to balance their portfolios by including more large-cap investments. Akhil Chaturvedi, executive director at Motilal Oswal AMC, noted that “managing risk is paramount today,” and the increased focus on large-cap and multi-cap funds is a positive development for long-term investors looking to mitigate potential market volatility.
Despite this shift, experts believe that the inflows into large-cap funds may be temporary, driven by valuation differences. As mid-cap and small-cap stock valuations stabilize, the allocation of inflows may once again shift toward these higher-growth segments.
Key takeaways
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