Large-cap mutual funds have witnessed huge inflows in April, followed by multi-cap schemes and then focused schemes. On the other hand, large and mid-cap, mid-cap as well as small-cap categories witnessed only modest inflows in April.
As per data, large-cap schemes have recorded a total inflow of around INR 1691.31 crores in April. Multi-cap schemes attracted INR 1240.15 crores worth inflow, with focused funds of INR 743.19 crores inflow.
In comparison, inflows in risky categories like large and mid-caps (INR 346.33 crores), mid-cap (INR 497.16 crores), and small caps (INR 384.33 crores) were much lower.
As per mutual fund advisors, most investors presently want to play it safe, given the uncertainties that have arisen from the pandemic, and how no one knows when economic revival will take place. Many investment experts are even recommending large-cap mutual funds to investors since they believe that these companies can manage to stay afloat even during a crisis like the present one.
Large caps benefit from having some of the largest businesses and leaders on board, who then are expected to lead the remaining team to the path of recovery when things become normal. These are also expected to fall lesser when compared to other riskier categories. Thus, large-cap companies can withstand the pressure better, thanks to their stronger balance sheets.
There are, however, some things that you still need to keep in mind.
Though large companies including large-cap mutual funds are the first ones to benefit in tumultuous times, especially when the economy learns to curb the problem; mid and small caps would also start going up when the economic activity picks up momentum. Additionally, the revival of mid-cap and small-cap segments will likely bring higher returns than large-cap mutual funds.
As per financial experts, the approach to be taken is simple. If you were investing in mid-cap schemes and have a risk appetite for the same, then definitely go ahead; since you will earn better returns for the risk that you are taking. However, if you are a conservative equity investor, you should stick to large caps.
Another point worth mentioning here is how investors tend to overstate their risk tolerance. However, it is in times like this that they realize their real risk appetite. Thus, if you are investing in small caps and do not want to take the risk any longer, move to a multi-cap or a large-cap fund.
Mutual fund advisors have also stated how a change in schemes at this point will hurt the long term financial goals of their investors. Though planners are not very convinced about how small-cap segments will tackle the situation, they are sure that their recovery will see the mid-caps going up. And while large caps might dominate initially, mid-caps also have the potential to deliver high returns. Investors should not just hop out of large caps at this point. If they understand that they don’t have the risk appetite for mid-caps, it makes sense to stick to large caps, since the market will remain to be volatile for quite some time. And this is precisely why one should not change asset allocations based on the present market scenario.
Returns by large, mid, and small caps suggest how mid and large-cap categories can hold the downside so much better than small-cap funds. In the last three months, the large-cap, mid-cap, and small-cap categories lost 21.58%, 23.76%, and 27.61% respectively.
The large-cap segment also has some really good companies that are trading on a discount, though the mid-cap space is not that cheap despite the correction. At such valuations, large caps make for an attractive bet.