As per SEBI’s circular, the 100 largest publicly traded companies by market capitalization are classified as large cap companies. Market capitalization is defined as the share price multiplied by the number of outstanding shares of a company. Large cap companies have fairly long histories, large market share in their respective industry sectors and large sized balance sheets. They have large organizations, management depth and adhere to certain standards of corporate governance (including financial disclosures). Owing to their financial strengths, large cap companies are less vulnerable in economic recessions and are therefore, seen as less risky assets (compared to midcap and small cap stocks) by investors. Large cap stocks are also much more extensively researched by stock analysts. As a result, large cap stocks have historically commanded valuation premiums over midcap and small cap stocks.
As per SEBI’s mutual fund classification, equity mutual fund schemes which invest at least 80% of the assets under their management (AUM) in large cap stocks are categorized as large cap funds. The riskometer profiles of these schemes are moderately high risk schemes.