How Bajaj Finserv Large and Mid Cap Fund seeks a balanced approach to long-term growth

Equity investments are known for their growth potential, but the accompanying volatility can make the investing experience stressful. Large and mid cap funds, however, seek to combine growth with relative stability to strike a better balance between risk and reward balance.

The Bajaj Finserv Large and Mid Cap fund seeks to further enhance this balance by leveraging the moat investing strategy. Moat investing involves identifying and investing in companies that have a strong edge over their competitors and a track record of strong performance.

This article tells you more about the Bajaj Finserv Large and Mid Cap Fund and how it uses moat investing to optimise return potential while mitigating risk.

What is a large and mid cap fund?

A large and mid cap fund invests in both large and medium-sized companies in terms of market capitalisation. Large cap companies are those listed between 1 and 100 on the stock exchange. Mid cap companies are ranked between 101 and 250.

Large cap companies are typically well-established and leading firms in their respective sectors, which makes them more resilient to volatility and fluctuations. Meanwhile, mid cap companies, being in their expansion phase, provide higher growth potential but come with greater risk. Large and mid cap funds, therefore, seek to balance the relative stability of large cap stocks with the growth potential of mid cap stocks.

What is moat investing?

An economic moat, a concept popularized by Warren Buffet, is a protective buffer that gives companies an advantage over their competitors. Companies with an economic moat have a distinct competitive edge that can help them protect their market share and profitability. Moat investing involves identifying and investing in such companies to create a more resilient portfolio that can potentially mitigate risk during short-term fluctuations and downturns.

Companies with an economic moat are typically well-established firms with strong business models. Their brand strength, innovation or unique processes can contribute to their competitive advantage.

How Bajaj Finserv Large and Mid Cap Fund uses moat investing

The stock selection process of the Bajaj Finserv Large and Mid Cap Fund is driven by the moat investing strategy. This involves identifying companies with economic moats through thorough analysis. Fund managers also seek out companies that have the potential to build upon and enhance their competitive edge – in other words, companies that can expand the moat. Some of the filters used to identify such companies are:

High pricing power: Such companies are capable of setting high prices or raising their prices without significantly reducing the demand for their products.

Industry leaders: Such companies are at the top of their industry segments or sectors and typically have dominant market shares.

Management quality: Effective leadership enhances the competitive advantage of such companies.

Innovation: This can help companies stay ahead of the curve and intelligently adapt to changing environments.

Additionally, the fund also uses Bajaj Finserv Asset Management Ltd’s in-house InQube philosophy, which combines information and data with behavioural finance insights.

Benefits of moat investing

Relatively stable returns: Companies with strong moats tend to deliver relatively stable returns because of their competitive advantage. This also makes them better positioned to withstand market volatility or mitigate its impact.

Sustainable growth: Firms with economic moats often have long-term growth prospects, driven by their ability to fend off competition.

Higher profit margins: These companies can maintain higher profit margins due to factors like brand loyalty, cost advantages, and pricing power.

Resilient market position: Moat companies have strong defences against competitors, ensuring they maintain their market share.

Attractive valuations: Investing in companies with durable competitive advantages can potentially lead to attractive valuations over time as they continue to grow and generate cash flow.

Long-term wealth creation: By focusing on high-quality businesses with sustainable moats, investors can potentially build wealth steadily over the long term, aligning with a buy-and-hold strategy.

How Bajaj Finserv Large and Mid Cap Fund seeks balanced growth potential

The moat investing strategy, combined with the inherent attributes of large and mid cap funds, help the Bajaj Finserv Large and Mid Cap Fund seek an optimised risk-return balance. Moat investing focuses on identifying companies with resilience, robust models and long-term growth potential. To add further stability, the fund has the option to allocate a portion of its portfolio (up to 30%) to debt or fixed-income instruments. This can provide additional mitigation against market volatility.

Investors seeking long-term growth potential with relative stability and careful stock selection can consider investing in the Bajaj Finserv Large and Mid Cap Fund. Moat investing, with its focus on relatively stable growth, resilience and innovation, can be suitable for those seeking a strategic path to wealth creation that prioritises long-term and sustainable wealth-building potential over short-term trends.

Factors to consider before investing in large and mid cap funds

1. Risk tolerance: Equity investments are suitable for investors with a high risk appetite.

2. Growth potential: Large and mid cap funds can be suitable for those seeking long-term growth potential with reasonable risk mitigation. However, their growth potential is not as high as that of pure mid cap or small cap funds (which are also riskier).

3. Investment horizon: Your investment horizon plays an important role in fund selection. Equity funds are suited for investors with a long investment horizon

Lumpsum vs SIP investment in large and mid cap fund

Investors can consider investing in large and mid cap fund either through lumpsum or Systematic Investment Plans (SIPs). Lumpsum investments may be suitable for investors with a high risk appetite and a large sum to invest at one go. Investors who want to make smaller but regular investments and mitigate risks may find SIPs suitable.

SIPs promote disciplined investing by encouraging regular, automated contributions, which helps accumulate wealth over time. Second, they benefit from rupee cost averaging. By investing a fixed amount regardless of market conditions, investors end up buying more units when prices are low and fewer when prices are high. Over time, this can mitigate the impact of market volatility and reduce the per-unit investment cost. This is known as rupee cost averaging.

Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.

(No Hans India Journalist was involved in creation of this content)