Large and mid cap funds are equity funds that invest in a balanced mix of the top 250 companies in India. The top 100 companies by market capitalisation are large caps, whereas the next 150, ranked from 101 to 250, are mid-caps. The fund allocates a minimum of 35% to each, large and mid cap stocks. The remaining 30% can be allocated across other categories, including small-caps and debt securities.

Mid-caps bring potential growth to the portfolio while large-caps provide stability during uncertain market cycles. By investing mainly in big and medium-sized companies, the fund tries to balance growth and stability. Since both are still equity investments, the fund can be volatile in the short term.

Here’s who can benefit the most from holding these mutual funds:

• If you want exposure beyond blue-chips: If dedicated Large Cap Funds are too bland for your taste, this category gives you mid-cap exposure. Large caps rarely double their business, but mid-caps have plenty of room for future growth.
• If you’re building long-term wealth: Mid-sized companies often need time to expand. If you have a 5-7 year horizon, investing in these funds can be beneficial. A longer horizon also helps you ride through market volatility more smoothly.
• If you’re looking for a mix of stability and growth: Higher returns always come with higher risks. But if you want balanced risk with potential for higher growth, you can consider large and mid cap funds to invest in. They add growth to your portfolio without extreme risk.

If you want more freedom across different market caps, you can also explore flexi cap funds. They also include small-caps in their portfolio, without any upper or lower allocation limits.

When you buy units of a large and mid cap scheme, your money is pooled into a single fund. The fund manager allocates this huge sum across a handpicked basket of 50 to 60 stocks, chosen from the top 250 companies.

Now, if you invested ₹10,000, then the fund manager could split it using different strategies, such as:

As long as total equity investment remains 65% or above and large and mid caps comprise 35% each, the fund manager can build different strategies.

Now, if the stocks in the fund’s portfolio rise, its NAV rises, and so does your investment value. But if the stocks dip, your investment value may also fall temporarily.

Here are some benefits you may get by investing in these funds:

• Effective use of capital: If you individually invest in 20 large-cap stocks and 20 mid-cap stocks, you may require a lot of money. But this fund gives you exposure to India’s top 250 companies, with investments as low as ₹500 per month.
• Balanced risk-reward profile: You don’t have to take the higher risk of small-caps or the steady performance of blue-chips alone. This fund balances potential growth and risk by blending large-cap and mid-cap stocks in a single scheme.
• Less dependence on one market-cap segment: You don’t have to rely only on large companies or only on mid-sized companies to perform. The portfolio can handle it better when market sentiments turn cautious.
• Fixed mid-cap exposure: Unlike some flexi cap funds that stay heavily focused toward large caps for safety, this scheme is legally required to keep at least 35% in mid-caps at all times. This gives you real exposure to growing businesses.

Being an equity-oriented scheme, a large and mid cap fund may carry some risks, such as:

• Higher volatility than pure large-cap funds: Since 35% or more is invested in mid-caps, it may see sharper swings than bluechip funds or Nifty Next 50 funds.
• Mid-cap business risks: Mid-sized companies carry higher debt than established giants. Factors like interest rate hikes and raw material cost spikes can directly affect their business, eventually affecting the fund’s NAV.
• Underperformance risk when small-caps boom: When penny stocks surge and small-caps rally aggressively, returns from large and mid caps may look smaller. Many investors may tend to chase gains due to FOMO.
• Fixed allocation to mid-caps: If the market corrects deeply, the fund manager cannot move all the money into large-caps, like in flexi cap funds. The fixed 35% allocation in mid-caps may cause valuations to drop temporarily.

How can you handle these risks?

Here are a few tips to help you handle these risks better:

• Invest for the long term: Don’t judge equity funds in a few weeks or months. Give it enough time to pass through different market cycles.
• Use SIP instead of lump sum: Regularly investing helps you average out the NAV over time. It reduces pressure to find the “perfect” time to invest.
• Manage your risk profile: To reduce overall risk, you can reduce your equity exposure. Consider other categories such as money market funds or conservative funds.

These 3 mutual fund types can give you exposure to companies of different market caps. But their rules are quite different. Here’s a quick comparison:

If you want the fund manager to freely move between companies of different market caps, look at flexi cap funds. If you want a fixed allocation across all three categories, multi cap funds may be a better fit. But if you want to invest in equity, debt and gold all at the same time, you can explore multi asset allocation funds or aggressive funds.

Picking the best large and mid cap mutual funds isn’t about going for the highest potential returns. There are more factors to consider, such as:

• Check beta value: If the beta is less than 1, it shows that the fund is resilient during market corrections. So the lower the beta value, the better it is for investment.
• Compare risk-adjusted ratios: Compare two ratios (Sharpe Ratio and Sortino Ratio) across different funds. A higher number means it generates higher returns per unit of risk taken.
• Check expense ratio: This is the annual cost of managing the fund. Lower is generally helpful, but don’t pick a fund based only on the lowest expense ratio. Prefer a direct plan for lower costs.
• Focus on long-term performance: Look at how the fund has performed over the years across different market periods. One excellent year doesn't tell you what a 5-7 year period can.

Always match the fund with your risk level and investment horizon. Not all funds suit everyone. If you're investing for the short term, debt funds can be a better choice. For steady quarterly cash flow, you can explore dividend yield funds. There are funds for every investor's needs.

Starting your journey on the Millions app takes only a few minutes on your phone:

• Download the Millions app from the Google Play Store or iOS App Store.
• Set up your free account by entering your mobile number and completing KYC requirements.
• Once logged in, open the mutual funds section and filter Large & Mid Cap Funds.
• Select the fund that suits your financial goals and risk appetite.
• Tap on “SIP” and choose whether you want to invest on a monthly, weekly or daily basis.
• Enter the amount, select the SIP debit date and authorise the payment.

That is all it requires to take the first step. You don’t need big commitments, and you definitely don’t need a big bank balance. Set aside a small amount from your pocket money every month and automate an SIP. As you earn more in future, you can increase your investment and diversify across multiple asset classes.