Large and Midcap Funds: Bridging Stability and Growth, Simply Put

When it comes to equity mutual fund investing, many investors struggle with a common problem, should I stick with the relative safety of large cap companies, or take on more risk for potentially higher returns with mid cap stocks.

What if you didn’t have to choose.

That’s where Large and Midcap Funds come in, a unique category of equity mutual funds that aim to offer the best of both worlds. As per SEBI’s guidelines, these funds are required to invest a minimum of 35% each in large cap and mid cap stocks, ensuring a structured approach to diversification.

By blending the stability of India’s top 100 companies with the growth potential of mid sized businesses, these funds aim to deliver risk adjusted returns suitable for investors with a medium to long term horizon.

Key Takeaways

• SEBI Regulation: Large and Midcap Funds must invest at least 35% in both large cap and mid cap stocks, providing dual exposure by rule.
• Balanced Growth Potential: These funds aim to combine the resilience of large companies with the agility of mid-sized businesses.
• Risk Profile: Suitable for investors with a medium to long term horizon and a moderate to high risk appetite.
• SIP Friendly: Investing via a Systematic Investment Plan (SIP in mutual funds) helps manage volatility and builds wealth steadily over time.
• Fund Metrics Matter: Always check the expense ratio, exit load, Sharpe ratio, and portfolio turnover before investing.

Large Mid Blend - SEBI’s 35% + 35% Rule

As per SEBI’s mutual fund categorisation framework, Large and Midcap Funds are a distinct category of equity mutual funds with defined allocation mandates. These funds are required to:

• Invest at least 35% of their assets in large cap stocks (i.e. the top 100 companies by market capitalisation), and
• Invest at least 35% in mid cap stocks (ranked 101st to 250th by market capitalisation)

The balance of up to 30% may be allocated at the fund manager’s discretion either to large caps, mid-caps, or even select small caps or cash equivalents, depending on market conditions and opportunities.

This clear mandate ensures that investors benefit from diversified exposure to both established leaders and emerging growth companies, rather than leaving allocation entirely to the fund manager’s call as seen in flexicap or multicap funds.

How the Blend Cushions Downside Yet Captures Upside

Large and Midcap Funds are structured to balance risk and reward making them suitable for investors seeking a mix of stability and growth. Here’s how the dual allocation works in your favour:

• Large cap exposure brings relatively lower volatility, better liquidity, and steady performance during market corrections. These stocks often act as a defensive shield in volatile phases.
• Mid cap exposure adds higher return potential, especially during bull runs or sectoral rallies. While mid-caps are more volatile, they can grow faster than their larger peers over time.

By combining these two segments, the fund aims to reduce the downside risk associated with pure mid or small cap funds while still allowing investors to benefit from market upside.

For long term investors, this approach often results in smoother wealth accumulation, particularly if held through Systematic Investment Plans (SIPs) that benefit from rupee cost averaging.

Kotak Large & Midcap Fund: Current Allocation Snapshot

• Fund Offers exposure across market cap segments with minimum level of 35% each in large and mid cap segments
• The fund seeks opportunities in sectors with strong company performance and growth potential.
• The fund adopts a GARP (Growth at a Reasonable Price) investment style.
• The Large and Midcap selections are driven by valuations, bottom up-research, and market outlook.

As of June 2025, the Kotak Large and Midcap Fund is positioned as follows:

Key Sector Exposures:

• Bank
• IT
• Pharma

Top Holdings Include:

• HDFC Bank
• BEL
• ICICI Bank
• Infosys
• Eternal Limited

Investor Checklist Before Picking a Large Mid Fund

Before investing in a Large and Midcap Fund, keep the following essentials in mind:

1. Investment Horizon and Risk Tolerance

These funds are ideal for investors with a minimum 3+ year horizon and a moderate to high risk appetite. The large cap portion adds stability, while the mid cap portion introduces higher return potential   along with some volatility.

2. Role in Your Portfolio

Ensure the fund fits well with your existing holdings. If you already own separate large  or mid cap funds, check for overlap. This category works best as a core equity allocation when you're looking to balance growth and stability.

3. Key Parameters to Review

Look into important metrics such as:

• Expense ratio(lower is better),
• Exit load,
• Sharpe ratio(for risk adjusted return), and
• Portfolio turnover(to understand how frequently the fund is churned).

4. SIP vs Lumpsum

A SIP in mutual fund helps average out costs and reduce market timing risk. Lumpsum investments may be considered during market dips, but only if you’re comfortable with near term volatility.

Conclusion

Large and Midcap Funds offer a smart middle path for equity investors who want the stability of large caps with the growth potential of mid-caps all within a single, SEBI defined framework. With a mandated minimum allocation of 35% each to large and mid-cap segments, these funds bring both structure and diversification to your portfolio.

Whether you’re just starting your mutual fund journey or looking to rebalance your existing investments, a well managed Large and Midcap Fund can serve as a core holding for long term wealth creation. However, ensure that it fits your overall asset allocation and risk profile.

FAQs

Q1. Is a Large and Midcap Fund better than a Multicap Fund

They differ in their structure. Multicap funds have full flexibility across market caps, while large and midcap funds are bound by SEBI's 35%+35% rule. Choose based on your preference for flexibility vs structure.

Q2. Can I start with ₹1000 SIP in a Large and Midcap Fund

Yes, most AMCs allow SIPs starting at ₹100.

Q3. Are these funds tax efficient

Yes, they qualify as equity funds. Gains held for over one year attract 12.5% LTCG tax. Refer Kotak Tax Reckoner for up to date tax rules.

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