Why having large and midcap funds in the portfolio matters now?

Current market context

The market has stabilized and is in a consolidation phase, since the US and Iran agreed on a peace deal to end the War in Middle East and reopen the Strait of Hormuz. Brent crude oil price has slipped below $75 per barrel. Nifty 50 has broken out above the sentimental 24,000 level. FII outflows seem to be tapering down after June 17^th, when the peace agreement was signed. In the Monetary Policy Committee meeting in June 2026, Reserve Bank of India (RBI) kept the repo rate unchanged at 5.25%. The centre is carefully balancing inflation and growth with a neutral monetary policy stance. Nifty is trading in a tight range, but midcaps are outperforming. In the last 1 month, Nifty Midcap 150 TRI was up nearly 2%, while Nifty 100 TRI was down 2%. In the current market situation large and midcap funds, which invest in both large and midcap stocks can be suitable investment options for long term investors. In this article we will discuss about large and midcap funds.

What are large and midcap funds?

Large and midcap funds are diversified equity funds which invest minimum 35% in large cap stocks (top 100 stocks by market capitalization) and minimum 35% in midcap stocks (101^st to 250^th stocks by market capitalization). The fund manager has the flexibility of investing the balance 30% in large cap, midcap, small cap stocks or other asset classes (e.g. fixed income, cash equivalents etc).

Why invest in large and midcap funds?

• Winners rotate across market cap segments: The chart below shows the annual returns of large cap (Nifty 100 TRI), midcap (Nifty Midcap 150 TRI) and small cap (Nifty Small Cap 250 TRI) indices. A diversified portfolio of large cap and midcap stocks can produce superior long-term returns, while reducing downside risks in volatile markets.
  
  

  

  Source: National Stock Exchange, Advisorkhoj Research; as on 31^st May 2026. Large cap is represented by Nifty 100 TRI, midcap by Nifty Midcap 150 TRI and small cap by Nifty Small Cap 250 TRI. Disclaimer: Past performance may or may be sustained in the future



• Large and midcaps outperformed the broad market index: The chart below shows the calendar year returns of large and midcap index (Nifty Large Midcap Index 250 TRI) and the broad market index (Nifty 500 TRI) over the last 15 years across different market conditions. You can see that Nifty Large and Midcap 250 TRI outperformed Nifty 500 TRI, 12 times in the last 15 years.
  
  

  

  Source: National Stock Exchange, Advisorkhoj Research; as on 31^st March 2026. Disclaimer: Past performance may or may be sustained in the future



• Lesser downside risks compared to midcaps and small caps: The chart shows the major drawdowns of the market over the last 20 years. You can see that in most cases, large and midcaps experienced smaller drawdowns compared to midcaps and small caps.
  
  

  

  Source: NSE, Advisorkhoj Research Data as on 31^st May 2026. Large & Midcap is represented by Nifty Large Midcap 250 TRI, midcap by Nifty Midcap 150 TRI and small cap by Nifty Small Cap 250 TRI. Disclaimer: Past performance may or may be sustained in the future



• Mix of growth and stability: The table below shows the median rolling returns and standard deviation of the rolling returns over different investment tenures (1 year, 3 year and 5 year) for different market cap segments over the last 20 years. You can see that large and midcaps were able to give higher median rolling returns than large caps over different investment tenures. At the same time, the volatility of large and midcaps was lower than midcaps and small caps across investment tenures.
  
  

  

  Source: Advisorkhoj Research, as on 22^nd June 2026. Large cap is represented by Nifty 100 TRI, Large and Midcaps by Nifty Large Midcap 250 TRI, Midcap by Nifty Midcap 150 TRI and Small cap by Nifty Small Cap 250 TRI. Disclaimer: Past performance may or may be sustained in the future



• Diversified industry sector exposure: Large cap indices like Nifty 100 has a heavier tilt towards certain sectors like BFSI, IT, Oil and Gas, FMCG. Large and midcaps provide exposure to sectors where large caps have no presence e.g. textiles, media and entertainment etc. Furthermore, Large and midcaps provide more balanced exposure to sectors like Healthcare, Capital Goods, Consumer Durables, Consumer Services, Realty, Chemicals, Textiles etc. where large cap exposure is low. These sectors can benefit from India’s consumption driven economic growth, rising per capita income, changing global trade dynamics, Government’s policies e.g. import substitution (Make in India), digitization, infrastructure spending, shift from unorganized to organized sectors etc.
  
  

  

  Source: NSE, as on 31^st May 2026. Large cap is represented by Nifty 100 and large & midcap by Nifty Large Midcap 250 indices. Disclaimer: Past performance may or may be sustained in the future



• Valuations have moderated: Market has been volatile for nearly two years. FII sell-offs, relatively high valuations, US trade policies, armed conflicts in the Middle East (e.g. 12 day Israel Iran War in June 2025 and 40 day US Iran War in 2026) and disruption in energy supplies have been driving volatility. Volatility have brought down valuations to reasonable in the large and midcap segments (see the graphic below).
  
  

  

  Source: Advisorkhoj Research, as on 31^st May 2026. Large cap is represented by Nifty 100 TRI and Midcap by Nifty Midcap 150 TRI. Disclaimer: Past performance may or may be sustained in the future



• Disciplined diversification: Mandate driven allocation to large cap and midcap stocks may keep investors disciplined in their diversification across market caps as opposed to chasing recent outperformance in specific market cap segments / fund categories.


• Avoiding potential portfolio overlap: Investing in a large and midcap instead of investing separately in a large cap and a midcap fund can help investors avoid potential portfolio overlap, as a large cap and a midcap fund may have common stocks, which a large and midcap fund will have no overlap.

Long Term Outlook

The long-term outlook of Indian equities remain positive. Stable macros, strong growth in consumption demand driven by per capita income growth, rising affluence, demographic advantages and shifting consumption patterns. In the long term, both large and midcap Indian companies are likely to benefit from the structural reforms made by the Government e.g. e.g. Atmanirbhar Bharat, Make in India, Digital India, Atal Innovation Mission, Defence sector reforms, labour law reforms etc.

Who should invest in Large and Midcap Funds?

• Investors looking for capital appreciation and wealth creation.


• Investors having a 5 year plus investment horizon in this scheme.


• This fund can be suitable for new or first-time investors.


• Investors with very high-risk appetite.


• Investors can invest in large and midcap funds through SIP depending on your investment needs.

Investors should consult with their financial advisors or mutual fund distributors if large and midcap funds will be suitable for their investment needs.