Allocate 30-70% of your equity portfolio to large-cap funds, say experts

Large-cap funds have shown steady performance, with recent results pointing to improving earnings momentum across leading companies. Experts say valuations look appealing for long-term investors

Largecap equity funds have deliv­ered steady performance in the past year. For the year ended Nove­mber 18, 2025, they returned 9.2 per cent on average, compared to 8.6 per cent for midcap funds and 2.4 per cent for smallcap funds. 

“Largecap funds provide stability, liquidity, and consistency — three essential pillars of long-term wealth creation. These companies have proven track records, predictable earnings, and leadership positions in their respective industries. They should be permanent, core holdings in every investor’s equity portfolio,” says Sirshendu Basu, head – products, Bandhan Asset Management Company (AMC). 

Despite this resilience, investor interest remains muted. According to data from the Association of Mutual Funds in India (Amfi), largecap equity funds saw net inflows of ₹971 crore in October 2025, the lowest since July 2024. 

The creamy layer 

Largecap funds invest a minimum of 80 per cent in the top 100 companies by market capitalisation. Indices such as the Nifty 50, Nifty Next 50, and Nifty 100 track this segment. The Nifty 100 Index offers diversified exposure to 17 sectors. Investors can choose from both active and passive largecap fund options. 

Steady compounders 

Largecap stocks are typically well-established names with a long-term track record. Many have weathered tough phases in the economy in the past and have strong balance sheets, experienced management, and a strong governance framework. “Large-cap funds are less prone to sharp market swings compared to mid- and smallcap funds and may offer comparatively steady performance over time, especially during economic downturns. Stocks held by largecap funds are highly traded, making it easier to enter or exit positions,” says Abhinav Sharma, fund manager, Tata Asset Management. 

Value on offer 

Experts say that valuations in the largecap segment remain appealing for long-term investors. “Largecap stocks have undergone a healthy phase of consolidation and now appear fairly valued, offering selective opportunities for investors. Importantly, earnings momentum for several largecap companies has begun to pick up, as reflected in the recent second-quarter results. Additionally, any reversal in foreign institutional investor (FII) flows could favour large caps, making them an attractive tactical allocation,” says Sorbh Gupta, head – equity, Bajaj Finserv Asset Management. Largecap equities are also less volatile than mid- and smallcap stocks, making them suitable for risk-averse investors. 

Less scope for alpha 

These stocks are widely researched by analysts and hence efficiently priced, leaving limited scope for fund managers to beat their benchmarks. According to SPIVA (S&P Indices Versus Active) India’s mid-year 2025 scorecard, 89.6 per cent of largecap funds underperformed the S&P India LargeMidcap Index over the five years ended June 30, 2025. 

“In an economic up-cycle, where markets tend to be broad-based, largecap funds may give lower returns compared to small- or midcap funds,” says Sharma. 

Core portfolio role 

Large caps should ideally form the core of individual investors’ equity portfolios. “Large-cap funds serve as the core of a balanced portfolio. While 40-60 per cent of the equity portion of a portfolio should be in largecap funds for balanced investors, conservative investors may go as high as 70 per cent, focusing on capital preservation and steady growth. Aggressive investors can keep around 30-40 per cent in large caps, using the rest for higher-risk, higher-return segments like mid and small caps,” says Basu. 

Investors should maintain a long-term view. “An ideal holding period is generally seven years or more, allowing the fund to ride through market cycles and capitalise on long-term growth,” says Gupta. 

 

The writer is a Gurugram-based independent journalist