Does it make sense to choose large cap schemes over mid, small cap mutual funds now?

It is a perennial dilemma faced by some mutual fund investors: should one choose large cap or mid cap or small cap mutual fund schemes to invest? The query gains urgency as large cap schemes are faring better than mid cap and small cap schemes lately. A participant at ET Wealth Investment Workshop held in Pune had a similar doubt: does it make sense to invest in large cap mutual funds over mid and small cap schemes at this point, he asked Krishna Sanghavi, head-equities, Canara Robeco Mutual Fund.

“Market has every kind of investing opportunity. It depends what you want from it,” Krishna Sanghavi told the participant. Elaborating further, Sanghavi said that it is not an apple-to-apple comparison. “There is no answer to which is better among small, mid or large cap schemes. The answer is that the market is cyclical. No market cap will do well all the time. If today large cap schemes are doing well, small and mid caps might do better than them in the next couple of years,” says Krishna Sanghavi.

Sanghavi spoke on the topic 'perspective on equity investment' at the 15th edition of ET Wealth Investment Workshop held on 26 July in Pune.


Sanghavi told the participants that historical data suggest equities generate better returns than other asset classes over a long period. He said that the equity market has gone up 380 times since the inception of BSE Sensex and has offered an average CAGR of 16 per cent. He told the participants that if investors stick to their investments through thick and thin, they will earn good returns.

“On a ten- and five- year basis, small caps have outperformed large caps and on a two year basis, large cap has outperformed the small caps. You shouldn't worry about this data, you should worry about your asset allocation,” Sanghavi told the participants at the ET Wealth Investment Workshop. He told the participants that sticking to your asset allocation is very important and not to change their allocation based on the prevailing market scenario.

Another investor wanted to know if taking tactical calls in equity mutual funds is a good idea. “Does it not make sense to switch to a better performing scheme when the market goes down,” the investors asked. “Timing the market is a high risk strategy. Timeless investing is the mantra,” Sanghavi said.