Any seasoned wealth manager would emphasize that large-cap funds are the most secure investment, followed by mid-cap, with small caps being among the most volatile, providing unpredictable returns.
However, in terms of returns, small and mid-cap funds can outperform their larger counterparts, albeit for a brief period. In 2023, something similar unfolded.
While large-cap funds, on average, delivered an annual return of 16.15 percent, mid-cap funds provided a return of 30.77 percent, and small caps yielded the highest average return of 34.29 percent.
It's crucial to note that despite offering muted returns, large-cap funds attracted the maximum investment, with total AUMs (assets under management) amounting to ?2,76,639 crore. Small-cap mutual funds, with the smallest asset size, amounted to ?2,20,176 crore (as shown in the table below).
Further analysis of the data reveals the top five performing mutual funds in each of the three categories across market capitalization: large-cap, mid-cap, and small caps.
Large-cap mutual funds invest a minimum of 80 percent of their AUMs in large-cap stocks, representing the top 100 companies by market capitalization. The average one-year return given by large-cap mutual funds stood at 16.15 percent as of December 21, 2023, according to MorningStar data.
Mid-cap mutual funds invest at least 65 percent of their AUMs in large-cap stocks, covering companies ranked between 101 to 250 by market capitalization.
Small-cap mutual funds allocate a minimum of 65 percent of their AUMs to small-cap stocks, representing companies ranked below the top 250 by market capitalization. The average one-year return for small-cap mutual funds stood at 34.29 percent, according to MorningStar data.
Investing in a fund is essentially aligned with an investor’s long-term financial goals. An investor should consider it only if the investment aligns with those goals and falls within the broader contours of asset allocation.
For example, if an investor, 'X,' is expected to have a 30 percent exposure to equity and has already invested 34 percent of their portfolio in different equity schemes, it's not advisable to invest more money solely because one particular scheme is offering a high return.
In conclusion, while high returns are a key determinant in choosing a scheme, it should not be the sole criterion.
.jpg)