Want to invest in both large-cap and mid-cap stocks through a single mutual fund? A large- and mid-cap fund can help you do that. These equity mutual funds invest in established companies and mid-sized businesses, offering exposure to both segments through a single portfolio.
However, these funds also carry market risk, and their returns depend on the stocks they hold and overall market conditions.
In this blog, we explain what a large cap fund is, how large and mid cap funds work, their benefits and risks, and five funds to compare before investing.
What Is a Large and Mid Cap Fund?
A large and mid cap fund is an open-ended equity mutual fund that invests in both large-cap and mid-cap stocks. As per SEBI's categorisation rules, these funds must invest at least 35% of their total assets in large-cap stocks and another 35% in mid-cap stocks. The remaining allocation can be made according to the scheme's investment strategy and applicable limits.
This means at least 70% of the fund's assets must be invested in these two categories. The fund manager decides how to allocate the remaining portion within the scheme's permitted investment limits.
The combination gives investors exposure to established businesses and mid-sized companies with growth potential. However, it does not guarantee better returns or lower losses than other equity funds.
Difference Between Large-Cap, Mid-Cap and Small-Cap Stocks
Companies are classified as large-cap, mid-cap or small-cap based on their full market capitalisation ranking. SEBI's framework uses the stock list prepared by the Association of Mutual Funds in India (AMFI).
What Is a Large-Cap Stock?
A large-cap stock is a stock of a company ranked among the top 100 by full market capitalisation. These businesses are often established and may have a longer operating history. However, large-cap stocks are not risk-free and can also fall sharply during market downturns.
What Is a Mid-Cap Stock?
A mid-cap stock is a stock of a company ranked between the 101st and 250th positions by full market capitalisation. Such companies may have room to expand their businesses, but their stock prices can be sensitive to economic conditions, earnings changes and market sentiment.
What Is a Small-Cap Stock?
A small-cap stock is a stock of a company ranked 251st or below on the market-capitalisation list. Small-cap companies may offer growth opportunities, but their shares can experience significant price fluctuations and liquidity risks.
Understanding the differences between small, medium, and large companies can help investors assess the level of exposure they want in their portfolios.
Top 5 Large and Mid Cap Funds to Compare
There is no single fund that is best for every investor. Here are the top 5 funds by 5-year return.
Data as of 15 October 2026. Returns are historical five-year annualised returns for direct-plan growth options. Expense ratios may change. This is a performance-based comparison, not a buy recommendation.
Do not select a fund based only on its five-year return or expense ratio. Compare performance across different market conditions, portfolio holdings, investment strategy, risk and consistency. Past returns do not guarantee future performance.
Benefits of Large and Mid Cap Funds
1. Exposure to Two Market-Cap Segments
A large- and mid-cap fund provides exposure to both established companies and mid-sized businesses. Investors can access these segments through a single mutual fund rather than selecting individual stocks.
2. Diversification Within Equity Investments
Investing across large-cap and mid-cap companies can spread exposure across businesses of different sizes. The actual level of diversification depends on the fund's holdings, sector allocation and concentration.
Diversification can help manage company-specific risk, but it cannot eliminate market risk.
3. Growth Potential
Mid-cap companies may have opportunities to expand their businesses, increase earnings and gain market share. A fund investing in this segment can participate in that growth if its stock selections perform well.
Large-cap holdings provide exposure to more established businesses, while mid-cap holdings add another source of potential growth. Neither segment is guaranteed to outperform the other.
4. Professional Fund Management
The fund manager selects and monitors investments according to the scheme's strategy. This can be useful for investors who do not want to research and manage a portfolio of individual large-cap and mid-cap stocks.
However, fund managers' decisions can also negatively affect returns.
Risks of Large and Mid Cap Funds
1. Market Volatility
These funds invest predominantly in equities, so their net asset values (NAVs) can fluctuate with the stock market. Mid-cap stocks can experience sharp price movements, while large-cap stocks can also decline during market corrections.
2. Fund Manager Risk
The fund manager's stock selection, sector allocation and investment decisions influence performance. Poor stock selection or an unsuitable strategy can cause a fund to underperform its benchmark or peers.
3. No Guaranteed Outperformance
A large and mid-cap fund may outperform a pure large-cap fund in one period and underperform it in another. Similarly, the presence of large-cap stocks does not guarantee lower losses than a mid-cap fund.
4. Not Suitable for Every Investor
These funds may not suit investors who need their money in the near term or cannot tolerate substantial fluctuations. They are equity investments, not substitutes for deposits or other low-risk products.
Who Should Invest in Large and Mid Cap Funds?
Large and mid cap funds may suit investors who:
- Want exposure to both large-cap and mid-cap stocks through one fund.
- Have a long-term investment horizon, typically five years or more.
- Can tolerate fluctuations in the value of their investments.
- Prefer professional management over selecting individual stocks.
- Understand that returns are market-linked and not guaranteed.
A five-year horizon is a general consideration, not a guarantee that an investment will recover from a market decline within that period. Investors should align their choice with their financial goals, risk appetite and need for liquidity.
Large and Mid Cap Funds vs Multi Cap Funds
Both categories invest across market capitalisations, but their allocation requirements differ.
Multi-cap funds must maintain minimum allocations across all three market-cap categories. Large and mid-cap funds must allocate at least 35% each to large-cap and mid-cap stocks.
The choice depends on the exposure an investor wants. Multi-cap funds have a mandatory small-cap allocation, while large- and mid-cap funds focus on large- and mid-cap companies.
Taxation of Large and Mid Cap Funds
Large- and mid-cap funds are equity-oriented mutual funds. Their capital gains are generally taxed under the rules applicable to qualifying equity-oriented funds.
For redemption on or after 23 July 2024:
- Short-term capital gains (STCG): Gains on units held for 12 months or less are generally taxed at 20% plus cess under Section 111A.
- Long-term capital gains (LTCG): Gains on units held for more than 12 months are taxed at 12.5% plus cess, for aggregate gains exceeding ₹1.25 lakh in a financial year under Section 112A.
Conclusion
A large- and mid-cap fund allows investors to access both large-cap and mid-cap stocks through a single equity mutual fund. It can be an option for investors seeking long-term growth who are comfortable with market volatility.
However, the combination of large and mid-cap stocks does not guarantee higher returns or protect an investor from losses. Before choosing a fund, compare its investment strategy, portfolio, performance across market cycles, expense ratio and risk profile. Select a fund based on your financial goals and risk tolerance rather than recent returns alone.
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