What Does Large Cap Stocks Mean?
The word cap denotes market capitalization. It is a measure of a publicly listed company’s outstanding share of stock. Companies ranked between 1 to 100 based on their market cap are categorized as a large cap stock. Behind them are mid cap stocks and small cap stocks.
For example - the Nifty 50 benchmark indices in India include the top company shares. Nifty has the top 50 stocks trading on the National Stock Exchange.
How are Large Cap Stocks Traded?
As an investor, you may want to know about the ways to invest in large cap stocks.
Here we look at 3 key sources:
• Direct Equity Investment
You can connect with a broker and purchase stocks via a demat account. This way you will have better control of your holdings.
• Mutual funds focusing on large cap stocks
Some mutual funds have a heavy percentage of the top large cap stocks. You can use these mutual funds for professional management and diversification.
• Exchange-traded funds or ETFs
Another way to invest in these stocks is to track indices like BSE and Nifty. It gives you the flexibility to trade individual stocks directly.
Why Should I Invest in Large Cap Stocks?
There are many advantages you can get by investing in big cap stocks such as -
• Stability
They are quite dependable as they are usually associated with established and financially robust companies.
• Liquidity
These stocks tend to be more liquid than others since it allows you to adjust your portfolio without the risk of significant losses.
• A Reliable Income Stream
A large cap stock offers regular dividend distribution because they consistently generate profits.
• Growth Potential
Top large cap companies usually have the resources to innovate and acquire smaller firms to grow bigger.
Role of Large Cap Stocks in Achieving Portfolio Stability and Growth?
Large cap stocks balance portfolios by offering consistent growth and liquidity. They help you offset losses from volatile markets and facilitate easy rebalancing. Hence, most asset allocation strategies often recommend a higher portion of large caps to manage risk while maintaining growth potential in a diversified portfolio.
How Should One Invest in Large Cap Companies?
Buying these stocks offers many benefits since they can help protect you from sudden economic downturns.
Follow these steps to start investing in companies on the large cap stocks list-
• Research the Company
You need to conduct thorough research on the financial performance of these companies over the past five years.
• Perform Analysis
You can assess the dividend payout ratio of large cap companies to understand the ways profits are allocated between reinvestment and dividends.
• Set Investment Goals
It is important that you determine your investment objectives and make stock choices accordingly.
• Track Your Portfolio
You also have to regularly monitor your portfolio because it can help you align your goals during market fluctuations.
