Investors are often confused about whether to invest in large-cap funds, mid-cap funds, or opt for a mix through large & mid-cap funds.
According to a study by Abakkus Mutual Fund, the large & mid-cap category has historically delivered a balance between the two, offering stronger long-term returns than large-cap funds while witnessing lower volatility than mid-cap funds.
The study compares the performance of the Nifty 100 TRI, Nifty Large Midcap 250 TRI, and Nifty Midcap 150 TRI, which can be considered broad proxies for large-cap funds, large & mid-cap funds, and mid-cap funds, respectively.
Large & mid-cap funds provide balanced returns
The study shows that the large & mid-cap category has consistently ranked between large-cap and mid-cap funds across different market cycles.
While it has not matched the higher return potential of mid-cap funds, it has historically outperformed large-cap funds over every investment horizon analysed.
Over the past one year, the Nifty Large Midcap 250 TRI gave a 3% return, compared with 6% for the Nifty Midcap 150 TRI. But the Nifty 100 TRI fell 1% in the last one year.
The gap became more visible over longer investment periods. Over three years, the large & mid-cap index delivered a 16% return, compared with 11% for the large-cap index and 21% for the mid-cap index.
A similar trend was visible over 10 years, with the large & mid-cap index returning 16%, higher than the 13% recorded by the large-cap index but below the 18% generated by the mid-cap index.
Large & mid-cap funds occupy middle ground on volatility
Returns are only one side of the equation. The study also compares annualised standard deviation, a widely used measure of volatility that indicates how much returns fluctuate around their average.
A lower standard deviation generally reflects relatively more stable returns, while a higher figure indicates greater price fluctuations.
Across all investment horizons, the large & mid-cap index recorded lower volatility than the mid-cap index, while remaining slightly above or in line with the large-cap index.
Over the one-year period, both the Nifty 100 TRI and Nifty Large Midcap 250 TRI indices recorded a standard deviation of 15%, compared with 16% for the Nifty Midcap 150 TRI.
During the three and five-year periods, the large & mid-cap index maintained a 15% standard deviation, compared with 14% for the large-cap index and 17% for the mid-cap index.
Over 10 years, the large-cap and large & mid-cap indices both recorded a standard deviation of 16%, while the mid-cap index stood at 18%.
Overall, the data suggests that large & mid-cap funds have historically balanced return potential with lower volatility than mid-cap funds, while remaining slightly more volatile than large-cap funds.
Return and volatility of large & mid-cap funds across short and long term
The study shows that the return profile of the large & mid-cap category improved over longer investment periods.
The Nifty Large Midcap 250 TRI gave 3% returns over one year, 16% over three years, 14% over five years, and then again 16% over a 10-year period.
Its volatility remained relatively stable over time, with annualised standard deviation largely staying around 15-16% across different investment horizons. However, actual fund performance may vary from the underlying indices.
Disclaimer: This is purely for educational/ informational purposes and should not be taken as any sort of investment advice. Always consult a SEBI-registered advisor before making any investment decisions.
