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    Best large & mid cap funds to invest in 2023


    Large & mid cap schemes are suitable for aggressive investors who are willing to take the extra risk of investing in mid cap stocks. Since these schemes invest 35% of their corpus in mid cap stocks, they be extremely risky and voatile.

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    Are you looking to invest in a ready-made portfolio that invest in both large cap stocks and mid cap stocks? You should take a close look at large & mid cap schemes. These schemes invest most of the corpus in large and mid cap stocks. If you have the necessary risk appetite and long investment horizon, you can consider investing in these schemes.

    Large & mid cap schemes are open-ended equity schemes that will invest a minimum of 35% of total assets in large cap companies, and a minimum of 35% of total assets in mid cap stocks. However, this definition does not tell the whole story. Consider this: The 35% mandatory investments in mid cap stocks make them risky. However, they are less risky than pure mid cap schemes that invest around 65% in mid cap stocks. Also, the 35% investments in large cap investments offer them some stability. But they are riskier than pure large cap schemes. Then there is the question of the remaining 30% of the corpus.

    The fund manager has the option to decide where the money will be invested. If he thinks the large cap space is attractive, he may invest in large cap stocks. If he thinks mid cap and small cap stocks are poised to take off, he may invest in them. As you can see, these investments may increase or decrease the risk in these schemes.

    If all these explanations add to your confusion, we will make it simple. These schemes are suitable for aggressive investors who are willing to invest in mid cap stocks. It may have more exposure to large cap or mid cap stocks, based on the market conditions and the outlook of the fund manager. So, you should get into these schemes only if you are willing to take extra risk.

    However, you need not worry too much about this type of investing. Before Sebi introduced categorisation of mutual funds, most equity mutual funds invest mostly in large cap and mid cap schemes. Especially, in a bull market most schemes used to have allocation to large and mid cap stocks. Some adventurous ones also used to bet on small cap stocks.

    According to mutual fund advisors, these schemes will evolve over a long period. There will be schemes that will be inclined towards large cap stocks and some schemes will be leaning toward mid cap stocks. This will make it easier for investors to choose the schemes based on their risk tolerance. For example, if you want more margin of safety, opt for schemes that are tilted towards large cap stocks. Aggressive investors may bet on schemes that are inclined towards mid cap stocks.

    If you have a long-term horizon and are willing to take a little extra risk, you may choose from our list of recommended large & mid cap schemes. Before proceeding to the recommendation likst, here are some updates. Axis Growth Opportunities Fund, one of the recommended schemes, has been in the third quartile in the last four months. It had been in the fourth quartile for two months before that. Canara Robeco Emerging Equities Fund was in the fourth quartile last month. The scheme had been in the third quartile for the last six months. Sundaram Large & Mid Cap Fund has been in the third quartile in the last three months. Mirae Asset Emerging Bluechip Fund has been in the third quartile for the last three months. We will closely follow the performance of the recommended schemes and update you every month.

    Best large & mid cap mutual funds to invest in 2023:

    Our methodology: has employed the following parameters for shortlisting the Equity mutual fund schemes.

    1. Mean rolling returns: Rolled daily for the last three years.

    2. Consistency in the last three years: Hurst Exponent, H is used for computing the consistency of a fund. The H exponent is a measure of the randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to funds with low H.

    i) When H = 0.5, the series of return is said to be a geometric Brownian time series. These types of time series is difficult to forecast.

    ii) When H <0.5, the series is said to be mean reverting.

    iii) When H>0.5, the series is said to be persistent. The larger the value of H, the stronger is the trend of the series

    3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this measure.

    X =Returns below zero
    Y = Sum of all squares of X
    Z = Y/number of days taken for computing the ratio

    Downside risk = Square root of Z

    4. Outperformance: It is measured by Jensen's Alpha for the last three years. Jensen's Alpha shows the risk-adjusted return generated by a mutual fund scheme relative to the expected market return predicted by the Capital Asset Pricing Model (CAPM). Higher Alpha indicates that the portfolio performance has outstripped the returns predicted by the market.

    Average returns generated by the MF Scheme =

    [Risk Free Rate + Beta of the MF Scheme * {(Average return of the index - Risk Free Rate}

    5. Asset size: For Equity funds, the threshold asset size is Rs 50 crore

    (Disclaimer: past performance is no guarantee for future performance.)

    ( Originally published on Dec 26, 2022 )
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