Definition of a Large Cap Mutual Fund
Equity mutual funds, investments that allow you diversify your money with exposure to a basket of stocks, use market capitalization, or market value, as one way of defining their holdings. Large-cap funds own the stocks of companies valued at $10 billion or more, according to Investor Guide. Large-cap funds can be further classified by investment style.
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Growth, Value and Blend
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Large-cap growth funds invest in companies with greater-than-average earnings and no dividend distributions. By not offering dividends, these companies focus on reinvesting profits, developing expansion efforts and growing quickly to produce capital gains. Growth funds offer the potential for above-average returns but have above-average risk.
Large-cap value funds invest in companies currently considered undervalued. Often the companies have left a rapid growth phase and begun paying dividends from earnings, so investors can take advantage of dividends now and earnings over time. Large-cap value funds tend to be more conservative than large-cap growth funds.
Large-cap blend funds combine the best attributes of growth and value funds. Blend funds hold both growth and value stocks, which makes them less risky than growth-only funds and less conservative than value-only funds.
Sector And International
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Large-cap sector funds focus on one area of investing, such as energy, health care or real estate. The stocks purchased by a sector fund are related to that sector only. For example, an energy fund would buy the stocks of companies that extract and distribute coal, natural gas and oil for energy use.
You can also find large-cap international funds that invest in a particular region, such as Europe or Latin America, or even a single country, such as Germany. These funds hold stocks in large companies that operate in the region or country specified.
Because sector and international funds focus on narrow niches, they carry greater risk but also offer the potential for higher returns during growth periods.
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Types Of Management
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Large-cap funds can be actively or passively managed. An actively managed fund, such as a growth or sector fund, frequently buys and sells securities in search of greater returns. A passively managed fund, also called an index fund, chooses a stock market index to follow and then buys and holds the same or similar stocks in approximately the same percentages.
Expenses
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Every large-cap fund comes with annual expenses, which are expressed as an expense ratio. At the end of every year, the fund managers withdraw a percentage of the total fund holdings to pay for administrative and other operating expenses. Large-cap growth funds may have higher expense ratios due to the frequent buying and selling done throughout the year to increase earnings. Large-cap index funds tend to have lower expense ratios, as these funds seek only to duplicate the performance of a specified index.
Purchasing
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You can purchase large-cap funds online through mutual fund companies or a discount brokerage company. Once you set up an account and fund it with money you transfer from your bank, you can research the types of large-cap funds that interest you and purchase them easily.
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