Large Cap Vs Mid Cap Vs Ulips: Where to Invest when the Stock Market is down

A 20% decline from the peak of Sensex and NIFTY benchmark indices describes a bear market. And with the tremendous impact of COVID-19 on the economy, the Sensex and NIFTY have suffered more than 30% decline. However, stock markets are cyclical and prone to fluctuations. A fall in the stock market should be considered temporary, and shouldn’t stop you from investing.Unit-linked Insurance Plans (ULIP) and mutual funds share the common objective of extracting benefits from market equities and expanding wealth over a long period. Both investment instruments are ideal for long-term financial goals.

When it comes to mutual fund investments, bearish market is a favourable time. As an investor, you may always face the debate of large cap vs mid cap funds. Large-cap funds comprise 80% of investment in large-cap stocks of reliable companies with a proven track record. In contrast, mid-cap funds consist of 65% investment in mid-cap stocks of companies showcasing consistent progression and a good track record.Mid-cap funds come with more risks in comparison to large-cap funds that include companies from NIFTY 50. However, higher risks are capable of generating higher returns. So when comparing large cap vs mid cap, you also need to take into account the higher returns of mid-cap funds over large-cap funds.If you are looking for lower volatility, the established companies in the large-cap funds ensure a safe investment. But if you are seeking to explore equity markets with moderate risk appetite, invest in mid-cap funds. Despite the debate of large cap vs mid cap, equities showcase a high inflation-adjusted return in comparison to other asset classes.The large-cap fund category offers an average 7.5 % return for ten years while the mid-cap category provides around 10% return. If you are looking for an alternative long-term investment, ignoring the current market decline, consider investing in Unit Linked Insurance Plans (ULIPs). This investment instrument offers insurance cover as well as investment in equities.The large-cap category of ULIP offers an average 6.3% return for ten years while the mid-cap category under ULIP provides around an average 7.3% return. But ULIP provides an advantage of switching between funds to compensate for low-performing stocks. Few ULIPs charge beyond a specific limit of switches while some offer unlimited switches without any charges.Besides, ULIP has a minimum lock-in period of five years and will help you cover your long-term financial goals. The tax exemption on investment amount and the exclusion of Long-Term Capital Gains (LTCG) are additional benefits of ULIP. Hence, ULIP is an ideal investment if you want to ensure protection as well as explore the equity market with minimum risk. The Final Word Whether you are a seasoned or an inexperienced investor, gauge your risk tolerance before investing in the bearish market. If you are risk-averse, you can settle for the low-volatility of large-cap funds when the stock market is down. Avoid having a knee-jerk reaction to market fluctuations. It’s prudent to diversify your asset allocation rather than make your investment decisions based on large cap vs mid cap comparison.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.