Expert talk: Is it right time to invest in large and mid-cap funds?

The mid-cap and large-cap mutual funds have done extremely well over the last 12 months. On absolute performance, in line with the equity markets, most of these funds have given 50 percent plus return over this period. On relative performance compared to the benchmark, a large number of funds have done well over the last 12 months.

An obvious question investors are asking: should you invest in these funds?

Aditya Khemani, Fund Manager at Motilal Oswal AMC said that irrespective of whichever category of equity funds one puts money into, they will do well when the equity markets do well.

"They cannot be immune to the broader equity market performance," Khemani told CNBC-TV18.com.

Elaborating it further, he said that there has been a lot of speed breakers in the economy in the last 4-5 years starting with demonetisation, IL&FS credit crisis, the short-term impact of GST implementation and finally COVID and it is now reasonable to expect growth in the coming years to some extent.

"That will make up for the lost ground,” he mentioned.

"It looks like we are at the start of a strong earnings period for corporate India with corporate profit to GDP ratio which typically is in the range of 4.5-5 percent, currently being around 2-2.5 percent. So, as one sees strong corporate earnings growth going forward the markets should also do well. Within the different categories of funds, the large and midcap category looks a very promising segment due to the mandatory 35 percent investment in large caps and 35 percent in midcaps," Khemani added.

While large-caps can help absorb shocks and manage the volatility, the mid-caps can give the wings to reach financial goals in time, Khemani added.

Speaking on the current trends, Khemani said that asset allocation is getting corrected leading to higher participation of retail investors both into equity markets directly and also through instruments like Mutual Funds.

But these changes, however, don’t happen on their own and there has to be a trigger point for this change.

In view of Khemani, one of the reasons for this is an innate desire for anyone to maximise the returns.

"Hence, in an environment where equity was doing well and other competing asset classes like real estate, gold, fixed income returns were not doing well has attracted a lot of new investors into the fold. Secondly, enabled by the cheap data connectivity across the depths of India, knowledge has become freely and widely available through social media platforms, leading to stronger belief and conviction in people’s minds that one needs to have some allocation in equity to earn an optimum return on their savings. Hence, I believe that equity allocation either directly or through instruments like mutual funds will continue to increase over time," he added.