New fund offers (NFOs) and lower redemptions have played a crucial role in the remarkable increase in inflows into large-cap mutual fund schemes. In August, these inflows witnessed a nearly threefold rise, driven by NFOs and reduced investor redemptions.
According to data from the Association of Mutual Funds in India (AMFI), net inflows into large-cap schemes surged to ₹2,637 crore—a 293% jump compared to July. However, experts remain cautious, stating that it may be premature to conclude a definitive shift in investor behaviour.
Performance of large-cap funds compared to benchmarks
Over the years, large-cap equity schemes have delivered consistent returns. The three-year return for the large-cap category stands at 16.72%, with five-year and ten-year returns at 20.26% and 13.12%, respectively.
These figures highlight the long-term stability and attractiveness of large-cap funds for those looking to invest in stocks. Comparatively, the benchmark BSE 100 Total Return Index slightly outperformed, with returns of 16.6%, 20.89%, and 14.09% over the same periods.
Challenges and retail investor preferences
Despite the surge in large-cap inflows, retail investors still lean towards mid- and small-cap funds. Experts caution that during global market corrections, large-cap stocks are often the first to be sold by foreign investors, creating potential risks.
Sumit Agrawal, Fund Manager at Bandhan AMC, noted that while retail money continues to favour mid- and small-caps, there is a growing shift towards large-caps as a strategy to reduce risk and achieve stability when investing in stocks.
Momentum in large-cap fund flows
In the past six months, large-cap funds have experienced steady inflows, buoyed by NFOs and reduced redemptions. Agrawal further emphasised that many asset allocators and distributors are advocating for increased large-cap exposure as part of a broader risk management strategy.
He highlighted that his large-cap fund has consistently outperformed its benchmark, delivering an alpha of 2-2.5% over the long term. For investors looking to invest in stocks, large-cap funds offer a reliable and stable option.
Impact of NFOs and reduced redemptions
Manuj Jain, Associate Director and Co-Head of Product Strategy at WhiteOak Capital AMC explained that gross inflows into large-cap funds in August averaged ₹6,500 crores, with a significant portion attributed to an NFO by Bajaj Finserv.
Lower redemptions also contributed to a substantial rise in net inflows, with August registering ₹2,600 crore compared to the three-month average of ₹760 crore. This highlights how NFOs and reduced redemptions are creating positive momentum for investors looking to invest in stocks.
Large-cap funds as stability anchors
Fund managers view large-cap funds as stabilisers during volatile market conditions, offering credibility and security. Manish Mehta, National Head of Sales and Marketing at Kotak Mutual Fund, noted that improved valuations and continuous communication with investors have slowed mid- and small-cap flows. As mid- and small-caps are increasingly viewed as overvalued, investors seeking stability are now more inclined to invest in large-cap stocks.
The importance of diversification
While large-cap funds are gaining attention, diversification remains essential for long-term growth. The Nifty 50 index, for example, has risen by 26% over the past year, reflecting strong performance in large-cap stocks.
A Nuvama report indicates significant buying in stocks such as Zomato, TCS, and Maruti Suzuki, while selling has occurred in HDFC Bank, Reliance Industries, and Infosys. Experts agree that diversification is key to managing risk and achieving consistent returns when you invest in stocks.
Valuation and future outlook
Looking ahead, valuation-conscious investors are showing an increased interest in large-caps. According to Sumit Agrawal, large-cap stocks offer better value than mid- and small-caps, which are considered overvalued.
Kaustubh Belapurkar, Director of Research at Morningstar, emphasised that while attention has shifted to mid- and small-caps, large-caps continue to perform well and attract steady inflows. He noted that large-cap index funds are still drawing consistent investments of ₹4,000-5,000 crore, offering stability for those who invest in stocks.
Invest in stocks with large-cap funds for stability and long-term growth
While mid- and small-caps remain popular, large-cap funds are experiencing a resurgence due to NFOs, lower redemptions, and favourable valuations. For investors looking to invest in stocks, large-cap funds provide a stable and attractive option, particularly in a market where diversification is crucial for managing risk and ensuring long-term growth.
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