Investing in Large Caps Mutual Funds helps mitigate equity investment risks
especially in turbulent markets such as those prevailing today, thus being an
ideal vehicle for first time investors.
Rakesh Shah is 35 years old and works for a private bank. His wife Seeta is a
management lecturer. They make enough money to fund a comfortable lifestyle.
Having heard plenty of horror stories concerning the stock markets, they invest
all their savings in fixed income debt instruments such as post office small
savings schemes and bank fixed deposits. However, with inflation already in
double digits, Rakesh has now realised that his investments are barely
generating any post tax real return (investment return - tax liability -
inflation). He shares this dilemma with his Mutual Fund Distributor - SHENOY
INVESTMENTS
Read on to know the investment solution suggested by SHENOY INVESTMENTS
1. Investing in equities is inevitable if Rakesh wishes to fulfill all his
future financial life goals.
2. Rakesh is still young enough to venture into a higher risk fund but since
this is his first foray into the world of equity markets, he can test the
waters with a fund that provides equity linked returns but with a lower
investment risk.
LARGE CAP FUNDS COULD BE THE SOLUTION
As indicated by the category name, large cap funds are those which invest in
only those companies which are classified as "LARGE CAPS". Companies are
generally classified as large capi, it the market cap exceeds Rs.5000 crore.
However, this is not standardized and may vary from fund house to fund house
and may also change over time.
Large cap companies are characterised as being strong businesses and are
expected to deliver steady returns with few shocks. However, as they are at
their zenith, their growth potential is limited. They already enjoy a large
market share and hence growing further is not always an easy propositions.
These companies have a large floating stock and even large deals of buy or sell
do not move their prices significantly. They are, therefore, less volatile.
Funds that invest in these companies are suitable for investors who are
relatively risk averse and would like to see a steady income with low risk.
They are a good long term bet.
RISK RETURN PROFILE
Are large cap funds risk-free? No, not entirely. But the risk associated with
them is considerably lower than either mid cap or small cap funds. In the case
of a market fall / crash like we have seen recently, obviously large cap funds
will also see a downturn.
Whatever affects the market as a whole affects large cap funds too. Hence, they
are exposed to market risks. As large cap companies are well established, they
bounce back quicker than the smaller companies. On the flip side, when the
bulls are driving the market up, large cap companies will move at a slower rate
than small / midcap companies. However, in a bear phase, large caps do not fall
as hard as their smaller counterparts. Large caps, due to their size, are also
slower to react to opportunities in the market. Hence, their growth rate is
slower but steadies.
INVESTING STYLE
When the market is turbulent, as seen recently, and goes thru a rough patch,
these funds are the first to show signs of recovery. It makes sense to invest
in these funds via the SIP route, An SIP, as you are aware, delivers the
beneifts of rupee cost averaging and negates the need for timing the markets.
Hence, the investor is able to use market volatilityto his / her advantage.
With Best Regards
SHENOY INVESTMENT AND FINANCIAL
CONSULTANTS PRIVATE LIMITED
11-A, KASHI NIKETAN, 2ND ROAD,
CHEMBUR, MUMBAI - 400 071
TEL : 6797 3433 / 2521 2111
EMAIL : [EMAIL PROTECTED]
[EMAIL PROTECTED]
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