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Large-cap mutual funds offer lower volatility, with steady 3-year annualized returns of 12%–20%, and AUMs ranging from Rs. 50,000-Rs. 76,600 crore.
Mid-cap mutual funds have delivered an average 5-year return of 19.4%, with 3-year returns in the 20%-25% range but higher drawdowns.
SEBI’s April 2026 expense ratio changes can directly impact net returns; even a 0.20% cost difference compounds significantly over 10 to 15 years.
Strong investor activity in equity mutual funds, especially in large-cap and mid-cap categories, is fueling optimism in early 2026. Indian equity markets delivered solid returns over the last 3 years, with mid-cap indices outperforming large-caps by nearly 5% to 10% annually in certain rolling periods. At the same time, new regulations introduced in January 2026 and effective from 1 April 2026 are reshaping the cost structure of mutual funds. These changes are important as expense ratios directly impact net returns.
Domestic mutual funds have also increased exposure to new-age startups. Holdings in such companies rose sharply to Rs. 1.77 lakh crore by the end of 2025, up from Rs. 95,000 crore the previous year. This almost 86% increase in allocation reflects aggressive positioning, especially in mid-cap and growth-oriented strategies. This trend can create higher volatility but also higher potential returns in the coming years.
Large-cap mutual funds invest at least 80% of their assets in the top 100 listed companies by market capitalization. These companies generally offer stability, predictable earnings, and lower drawdowns during market corrections. Several large-cap schemes in February 2026 offer strong investment opportunities because of their high AUM, strong track records, and low expense ratios.
Nippon India Large Cap Fund currently manages assets of around Rs. 50,100 crore. Over the recent 3-year rolling periods, returns have stayed in double digits, generally between 12% and 18% annualized, depending on the entry point. The fund maintains a diversified portfolio across the banking, IT, energy, and FMCG sectors, which helps reduce overall risk.
Its relatively high AUM provides better liquidity and stability, though very large funds can sometimes face slight limitations on flexibility. Overall, it remains a preferred option for investors looking for steady long-term growth with comparatively lower volatility.
ICICI Prudential Large Cap Fund has an even larger asset base of about Rs. 76,600 crore. Over multiple 3-year windows in the current market cycle, annualized returns have ranged from 12% to 18%. The size of the fund reflects investor confidence and consistent inflows. The expense ratio for the direct plan has typically remained below 1.0%, which becomes more relevant after the April 2026 expense framework changes.
HDFC Large Cap Fund, another established scheme, has delivered mid-teens annualized returns across 3 years. The fund benefits from strong risk management and disciplined sector allocation.
Many large-cap funds in this category report AUM above Rs. 10,000 crore, offering liquidity and operational stability. Large-cap category’s volatility over 3 years has remained significantly lower than the mid-cap category.
Standard deviation levels are generally 2% to 4% lower compared to mid-caps. Drawdowns for large-caps during market corrections are usually 20% to 25%, while mid-caps sometimes fall 30% to 40%. This highlights better stability, even if the return is slightly lower.
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Mid-cap mutual funds invest in companies ranked between 101 and 250 by market capitalization. These companies are in the expansion phase, and earnings growth is usually faster than that of large-caps. Over the last 5 years, mid-cap mutual funds have delivered around 19.4% average annual return across the category. 3-year annualized returns on some platforms have touched 22% and even crossed 25% in strong cycles.
Axis Midcap Fund has remained among the top performers. In several 3-year rolling periods, annualized returns have exceeded 20%. The fund’s sector diversification across industrials, capital goods, and consumer discretionary has supported performance.
PGIM India Midcap Fund has shown impressive long-term numbers. Over 5-year horizons, annualized returns have often stayed in the mid-teens range. The AUM is more than Rs. 11,000 crore. This moderate-sized scheme provides flexibility in stock selection.
Invesco India Midcap Fund, Kotak Midcap Fund, and Tata Midcap Fund have also delivered strong performance. Across 3 to 5-year periods, annualized returns in the 18% to 28% band have been reported. Minimum SIP investments remain accessible at Rs. 100 to Rs. 500, making these funds popular among retail investors.
However, mid-cap volatility is clearly higher. During corrections, drawdowns can be materially larger compared to large-caps. However, in the expansion phase, an annual outperformance margin of 5% to 10% over large-caps has been seen.
New mutual fund regulations have been announced in January 2026. The revised expense ratio framework becomes effective from 1 April 2026. This change will standardize fee disclosures and may compress expense ratios for some schemes. Even a 0.20% reduction in expense ratio can increase the long-term corpus significantly over 10 to 15 years. So, investors must carefully compare updated cost data.
The rise in domestic mutual fund allocation to startups, now at Rs. 1.77 lakh crore, also signals increasing risk appetite. If earnings growth sustains, mid-cap funds could benefit strongly. But if valuations are correct, volatility may increase sharply.
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A balanced growth portfolio can allocate 60% to large-cap funds and 40% to mid-cap funds. A conservative allocation may use a 70% large-cap and 30% mid-cap mix. Rebalancing once every 12 months helps capture valuation differences and reduce risk. Historical data show mid-caps outperforming large-caps by 5% to 10% annually over the recent 3-year cycle, but with greater volatility.
The numbers clearly show that both categories offer opportunities in February 2026. Large caps provide stability and scale, while mid caps deliver growth momentum. Careful cost analysis after April 2026 and disciplined allocation are important for long-term wealth creation.
1. What are Large-cap Mutual Funds?
Large-cap mutual funds invest at least 80% of their assets in the top 100 companies by market capitalization, offering stability and relatively lower risk than mid-cap funds.
2. What are Mid-cap Mutual Funds?
Mid-cap mutual funds invest in companies ranked 101–250 by market capitalization, offering higher growth potential but greater volatility and deeper drawdowns.
3. How have mid-cap funds performed recently?
The mid-cap category has delivered an average annual return of around 19.4% over 5 years, with several funds posting 20%–25% 3-year annualized returns.
4. Why is April 2026 important for mutual funds?
New SEBI regulations, effective 1 April 2026, revise expense ratio structures and disclosure norms, potentially improving cost transparency and investor returns.
5. What is a balanced allocation strategy in 2026?
A 60% large-cap and 40% mid-cap allocation suits growth-oriented portfolios, while a 70% large-cap and 30% mid-cap allocation works better for lower-risk preference.
