When it comes to investing, you must have an ace up your sleeve to reap the best returns. Having a strategy that puts you in a position to generate above-inflation returns, in the long run, can help you preserve your capital and create wealth.
In volatile markets, investing in equities may seem a little scary. With prices going haywire, you may reconsider your investment strategy. However, remember that equity investments are for the long haul. If you stay invested in them for a long period, you are most likely to get handsome returns. If you are still apprehensive to make direct equity investments, then you may choose mutual funds for investments. Splitting your portfolio between large cap fund and mid cap fund can provide you with a double whammy portfolio.
What are large-cap funds?
Large-cap mutual funds are funds that invest at least 80% of their total capital in large-cap or blue-chip companies. These funds invest in all-large cap stocks that rank from 1-100 based on market capitalisation and provide relatively stable returns. Compared to other equity mutual funds in the market, the best large-cap category mutual funds are considered safe bets than other equity category mutual funds because performance fluctuation is less even during extreme market volatility.
If you want to make a smart investment decision but still hedge your risks, then large-cap mutual funds can be a good bet. If you are an investor who is ready to take on a little more risk, then you could consider investing in mid-cap category mutual funds.
What are mid-cap funds?
Mid-cap mutual funds invest at least 65% of their total capital in mid-cap companies. These are companies that are ranked from 101-250 based on their market capitalisation. These funds are slightly riskier than all largecap stocks but exhibit immense growth potential, making them possible candidates for large-cap companies. Mid-cap funds also provide the potential for higher returns than large-cap mutual funds. These funds provide an excellent opportunity to grow your portfolio with small investments.
Investing in large cap category and mid cap category mutual funds
Diversifying your portfolio between large and mid-cap funds is a great way to get exposure to the top 250 companies in the market. You get to invest in good quality stocks that will give you high returns in the long run. You could consider doing a 50:50 split between top large cap category and mid-cap category funds for the diversified portfolio. By doing so, you will get the following benefits:
1. First, it gives you a diversified portfolio. You invest in companies that are low risk, as well as have moderate risk. This balances out the risk and reward profile of your portfolio.
2. Mid-cap mutual funds provide relatively high returns. Large-cap funds protect your portfolio from huge loss during market downturns. This helps you strike a balance between the two strategies.
3. Investing in top large and mid-cap funds can help you create wealth in the long run while balancing risk.
There is an option to invest both large cap and mid cap stocks in a single scheme. The category is called large and mid cap category scheme. Under this category at least 35% investment in large cap stocks and 35% in mid cap stocks.