Mutual Funds

Best Large Cap Mutual Fund for 2024

Created on 29 Nov 2023

Wraps up in 5 Min

Read by 3.4k people

Updated on 16 Dec 2023

Hey there, welcome back! This article is all about getting straight to the point. But before we spill the beans on the best large-cap mutual fund for 2024, we want to walk you through the journey we took to pick this gem from the sea of options out there.

Let's start with a clear note: this article is laser-focused on large caps. So, if you're the kind of investor who likes to play it safe and is all about securing that hard-earned cash, you're in the right place!

Here's the game plan: we've anticipated the questions bouncing around in your investor brain and lined up the best answers. Now, keep in mind, your thoughts might take a different route, and that's cool. As we roll through, though, you'll likely find some clarity to help you carve out your own path. Ready to dive in? 

Alright, let's talk safety- because that matters. Now, since you've got your eyes on large caps, we've swerved away from the wild rollercoaster of high risk and high return ❌ and parked ourselves in the zone of Safety and Low Cost ✅.

Now, the big question: do you lean towards a more conservative active fund, doing its dance to actively slash the risk (even if it means a little compromise on returns)? Or, are you eyeing a passive fund, the steady tracker following the index's moves?

It's decision time, and we're here to unfold the options. Shall we dive into the details?

Active fund or Passive fund?

Before you make the call, here's the lowdown: 

  • An Active Fund is like having a manager actively making decisions to cut risk, even if it trims returns.
  • On the other hand, a Passive Fund just tracks the index, playing it cool.

To know in detail, make sure to read: Actively Managed Funds Vs. Passively Managed Funds

And the winner? The Index Fund.

Why, you ask? Well, we dug into the data for answers. We crunched the numbers, checked the returns of all large cap funds and index funds over the past 5 years and averaged them out. To add more spice, we didn't just stop at normal returns; we also took a peek at the rolling returns.

Here's the jaw-dropper: a fascinating report spilled the beans that 66% of large cap funds failed to beat index funds 75% of the time. 

Normal returns bhi compare kar liya and rolling return bhi dekh lia.

This brings us to the next big question on the scene…

Sensex or Nifty?

Ray Dalio, a renowned American businessman, proposes an interesting theory in investing. According to him, there's a point of diminishing returns when it comes to diversification in a stock portfolio.

To know more about Sensex and its calculation, check: What is Sensex? How it is calculated? 

Imagine your investment portfolio as a safety net. Initially, adding diverse stocks helps spread the risk, making your investments more robust. However, Dalio suggests that beyond a certain number, let's say 20, the additional stocks contribute little to risk reduction. More like having a safety net that's already strong enough; adding more strings won't make it much safer.

This concept challenges the conventional belief that more stocks automatically mean less risk. 
It's an intriguing perspective that prompts investors to rethink the traditional approach to portfolio diversification and consider the quality rather than just the quantity of stocks in their investment strategy. Check the graph below for a better understanding 👇

Asset correlation & risk
Source: Recipe by Finology

For a clearer grasp of this concept, I recommend watching a video where Mr. Pranjal Kamra eloquently explains it. 
Click here to view the video.

We will consider the SENSEX, comprising 30 stocks. This implies a strategic choice to balance diversification without going overboard, as, according to the theory, the advantages of further diversification beyond a certain point become negligible. It's a thoughtful approach that emphasises the importance of quality over quantity in constructing a robust investment portfolio.


Index Fund or ETF?

A key distinction between ETFs and mutual funds lies in their tradability. ETFs can be traded on stock exchanges, while mutual funds are typically acquired through an Asset Management Company (AMC), broker house, distributor, or advisor.

Our fund selection process involved leveraging 5 and 10-year returns to identify those outperforming the category average, refining our list. Ultimately, a critical factor for index funds took centre stage- the "Expense Ratio".

Although ETFs boast a lower expense ratio, we delved deeper into the Total Expense Ratio (TER), considering additional charges like brokerage and GST associated with buying or selling on the stock exchange.

Liquidity and accessibility emerged as crucial considerations, steering our preference toward Index Funds over ETFs.

The two funds standing out with the lowest expense ratios of 0.18 and 0.20 were Nippon India Index Fund - S&P BSE Sensex Plan and HDFC Index Fund - S&P BSE Sensex Plan.

One last question that came through was…

Market weight or Equi-weight?

When it comes to investing, do you prefer a fund that gives equal weight to all stocks or one that varies the percentages? 

Check out the graph below, illustrating the percentage-wise weightage of each stock in the SENSEX. It's a handy visual to help you decide your investment approach.

Market weight or Equi-weight

It's crucial to highlight that the underperformers are automatically eliminated during the revaluation process. Given the higher fees associated with this, coupled with the awareness that the index undergoes rebalancing every three months, our preference leans towards a fund that mirrors the index weights as they are. 

After carefully picking a fund, I have to spill the beans- it has a slightly higher expense ratio compared to the others left in the ring.

Hold your horses! There's more to these funds than meets the eye. Dive into our article titled "7 Factors to Look for Before Selecting the Right Mutual Fund" for the full scoop.

Now, here's the grand finale, the pièce de résistance!  The real star of the show is finding a trustworthy and reliable Asset Management Company (AMC). ✅ 

Let's unveil the showstopper of our article; cue the 'taaliyaan'!

HDFC Index Fund - S&P BSE Sensex Plan.

To wrap it up, quickly glance at the fund details!

About HDFC Index S&P BSE Sensex Fund

👉 This fund tries to copy how the top 30 companies in India, shown by the S&P BSE Sensex, are doing. 

👉 It works on keeping differences from the actual index performance as small as possible by adjusting the portfolio regularly. 

👉 It looks at changes in stock weights in the index and the money coming in or going out.

Source: Recipe by Finology

The Bottom Line

As we go deeper into the world of mutual funds, it's heartening to see how the Indian crowd is actively participating in this financial journey. Explore more articles on Insider by Finology for additional insights.

Stay connected for these upcoming articles and don't miss out on the free downloadable report available at Recipe by Finology. Alright, catch you on the flip side! 🚀

Disclaimer: The funds mentioned in this article are not a recommendation by Finology and should not be construed as such. The funds are mentioned based purely on numerical factors, and the process of selection should follow thorough research and professional advice.

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An Article By -

Sakshi Dhakre

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Sakshi is an adventurous spirit who enjoys both the intellectual stimulation of Finance and the sensory experiences of good food and nature’s beauty. She has a passion for delving into complex financial topics and distilling them down into easy-to-understand insights. When she's not poring over financial reports, you might find her exploring a new corner of the city, trying out new restaurants and cuisines or admiring the beauty of the night sky.

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