Blue chip companies
They are large well established organizations which are superior in financial shape, industry leaders and have low debt to equity ratios. Examples are the constituents of Sensex, Nifty such as, Infosys, Bharti Airtel, Reliance Industries, HDFC, Hindustan Unilever Limited, etc.
Each Asset Management Company has their own investment objective which defines the large cap company based on market capitalization.
Two such examples are given below:
Mutual Fund Scheme - Principal Large Cap Fund
Investment Objective - The scheme is to provide capital appreciation and/or dividend distribution by predominantly investing in companies having a large market capitalization. For the purpose of this fund, large cap companies are defined as those having market capitalization greater than Rs. 750 crores as on the date of investment (or any such amount as may be specified by India Index Services Ltd [IISL]) and in being the upper limit of market capitalization as a criteria for inclusion of a company in CNX Midcap 200 Index.
Mutual Fund Scheme - Canara Robeco Large Cap Fund
Investment Objective - The fund is to provide capital appreciation by predominantly investing in companies having a large market capitalization. For the purpose of this fund, large cap companies are defined as those which are ranked from 1 to 150 on the basis of market capitalization at the time of investment. The ranking is reviewed periodically.
Risk-return of investing in Large Cap funds
Investing in large caps scheme is comparatively low risk/low returns because such companies being established business houses, their business data is widely researched and information about them is easily available to all.
- These funds are less volatile than mid cap and small cap funds.
- They are ideal investments for risk-averse/conservative investors wanting to enter the stock market without owning too much risk.
- In the long-term, large cap funds out perform returns from mid-cap and small-cap funds.