What Are Large Cap Stocks?

5paisa Research Team

Last Updated: 31 May, 2022 03:27 PM IST


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Large Cap Stocks

In simple terms, large-cap stocks are the respective shares of the biggest companies in the US or those companies that comprise a market capitalisation of $10 billion or more. Large-caps are considered to be much safer and reliable sources of investments compared to small and mid-cap counterparts as these companies are much more settled. That being said, the stocks of these companies might not always offer the same success rate for high returns.

What do You Mean By Large-Cap Stocks?

Cap is a short term for market capitalisation. In a nutshell, it is the calculation of quantifying a corporation’s value through the overall existing shares multiplied by the expense of every unit. Thus, large-cap stocks are nothing but the shares that a company issues with large market capitalisation.

Features of Large-Cap Stocks

Given below are the prime features of large-cap stocks. 

Low-risk - Large-cap corporations comprise a much more sturdy and stable financial infrastructure, soundness, and fortitude. Large-cap shares thus have a very low impact when it comes to market volatility. It drastically reduces the risk on such investments, solely because they are independent of risks of dissolution in situations like a market contraction. Moreover, even in such circumstances, they can afford to run the business despite such occurrences. 

Moderate-returns - Large-cap corporations are much more structured and established due to which they contain financial stability. This impacts their shares’ value, thereby driving the return on stocks through the dividend component. 

Price - Large-cap stocks are generally much more expensive compared to most investment options. 

Rich history - Large-cap corporations have a rather comprehensive experience. They comprise a very rich functional history which makes it reliable for the general public to invest in your brand. 

Liquid - Large caps are maximal liquid investment options due to their extensive popularity and easily available investors. 

Benefits of Investing in Large-Cap Stocks?

Discover below some of the reasons why you should invest in large-cap stocks. 

Optimal stability

Large-cap shares provide maximal stability to your respective investment portfolio. There’s a very possibility of a large-cap corporation rendering as inoperative under a prime market crisis. Thus, it can handle the losses that you might suffer to a great extent through additional securities in your portfolio in a situation of a market slump. 

A systematic flow of income 

The prime source of income that large-cap stocks offer comes from non-capital appreciation and dividends. Thus, while it may not bring substantial capital gains on transfer or sale of the same, you will supposedly get regular dividends. This element can thus balance the lack of regular returns that you might receive from other sorts of securities. 

Accessibility of Information 

Large-cap corporations are compelled to offer access to their crucial documents like financial statements to the general public. This is not the same with small and mid-cap corporations. The operations and profitability offer a rather extensive viewpoint of the efficiency in a large-cap stocks list. This type of information is pivotal when it comes to sound investment conduct. Thus, you can easily analyse this information against your portfolio for understanding what suits it best. 

Alternative Investment Options

Mid-cap stocks - Mid-cap stocks comprise a comparatively better performance. Nonetheless, they are much more volatile and are not reliable when it comes to regular dividends. 

Equity Funds - these are a type of mutual funds wherein the pooled investment is utilised for buying equity shares and stocks. They provide returns like stocks whilst lowering the risk factor. 

Exchange-traded funds - ETFs are nothing but a form of mutual funds which are traded based on recognised stock exchanges. These funds mainly comprise fixed income securities and shares like debentures, bonds, treasury bills, and so on. ETFs are thus a feasible option when it comes to novice investors as they display stock-like properties and other elements like tax efficiency and low costs. 

Multi bagger - Multibaggers are the type of stocks that offer manifold features on the respective employed capital. These investments are recognised for their return in severals of investment amount and low costs. One great example of this is- when the investment returns double the specific investment amount, you term it double bagger. 

How Can You Invest in Large-Cap Stocks? 

The large-cap market in the US is closely monitored on, as well as, off Wall Street. This suggests that there are ample amounts of information available on individual corporations and even the market altogether. This is extremely beneficial if you’re investing in large-cap shares through your desired brokerage or investment account. 

That being said, you must do the necessary research to strike out the bad stock kicks, thereby identifying a much more stringent strategy. Many investors also go for index funds for lowering diversification, minimising legwork, and reducing potential returns. 

Bottom Line

No matter what approach you take to invest in large caps, it is extremely important that you do thorough research on every stock or fund prior to noting them down in your portfolio. You can also take advice from qualified financial advisors to learn more in-depth about which stocks may be the right fit for you to invest in. This was everything you needed to know about what large cap stocks are.

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