HDFC vs. ICICI Prudential: Evaluating the Best Large & Mid Cap Fund for Your Portfolio

The Nifty Largemidcap 250 index is a comprehensive benchmark that captures the performance of the largest and most dynamic companies in the Indian equity market, spanning both the large-cap and mid-cap segments. In 2024, this index has emerged as a critical indicator of market trends, reflecting the robust growth and resilience of Indian corporates across diverse sectors.

In 2024, the Indian equity market's large and mid-cap segments has shown remarkable performance and have continued to draw significant attention from investors, both domestically and internationally. The large-cap segment, comprising established companies with market capitalizations typically above Rs 20,000 crore (USD 2.5 billion), remains the backbone of the Indian stock market.

These companies, often leaders in their industries, include stalwarts like Reliance Industries, Tata Consultancy Services (TCS), and HDFC Bank. Their sheer scale, diversified operations, and strong financials provide a sense of stability and safety, making them attractive to conservative and long-term investors.

Despite global economic uncertainties and regional challenges, the large-cap segment has demonstrated resilience and moderate growth, driven by robust corporate earnings, expanding digital infrastructure, and government reforms aimed at bolstering economic activity.

The mid-cap segment has attracted significant interest due to its potential for higher returns compared to large caps. Companies in this category are often in a phase of rapid expansion and innovation, making them appealing to growth-oriented investors. Industries such as pharmaceuticals, technology, and consumer goods are well-represented in the mid-cap space.

These companies, like Aurobindo Pharma, Jubilant FoodWorks, and Mindtree, are capitalizing on the growing domestic market and export opportunities. The mid-cap segment's performance has been buoyed by India's increasing digital adoption, urbanization, and rising middle-class consumption.

[Read: 3 Best Large & Mid Cap Funds for 2024 - Top Performing Large & Mid Cap Mutual Funds in India]

This article provides an in-depth comparison of two popular large & midcap funds, analyzing their investment strategies, performance, risk factors, and suitability for different types of investors, to aid you in making an informed investment decision.

# - HDFC Large & Mid Cap Fund

HDFC Large & Mid Cap Fund is an open-ended equity scheme that belongs to HDFC Mutual Fund. It is a well-established fund launched in February, 1994 and currently has an AUM of Rs 19,454.33 crore (as of May 31, 2024).

The scheme aims to provide long-term capital appreciation by investing predominantly in large-cap and mid-cap companies. HDFC Large & Mid Cap Fund is an open-ended equity mutual fund scheme that primarily invests in a combination of large-cap and mid-cap stocks and endeavours to balance the stability of large-cap stocks with the growth potential of mid-cap stocks.

# - ICICI Prudential Large & Mid Cap Fund

ICICI Prudential Large & Mid Cap Fund is an open-ended equity scheme and belongs to ICICI Mutual Fund. Launched in July 1998, it is a popular large & mid cap scheme that emphasizes the PSU segment and currently holds an AUM of Rs 4,711.18 crore.

ICICI Prudential Large & Mid Cap Fund is benchmarked against Nifty LargeMidcap 250 - TRI as a primary index. The scheme aims to generate long term capital appreciation from a portfolio that is invested predominantly in equity and equity related securities of large-cap and mid-cap companies.

Investment Style and Philosophy:

- HDFC Large & Mid Cap Fund: follows a blend of investing in large-cap stocks (which are generally considered stable and established companies) and mid-cap stocks (which have potential for higher growth but may be more volatile).

The performance and strategy of the fund are guided by experienced fund managers at HDFC Asset Management Company Limited, who make investment decisions based on market research and analysis. The scheme focuses on a combination of large-cap and mid-cap stocks. Aims to build a portfolio of strong companies with a mix of established players and those with growth potential. Leans towards value investing, identifying stocks that may be undervalued by the market.

- ICICI Prudential Large & Mid Cap Fund: invests in a mix of large-cap and mid-cap companies, but the specific allocation can vary depending on the investment team's outlook. May place more emphasis on growth potential than value. The investment philosophy revolves around selecting fundamentally strong companies with growth potential while also managing risk through diversification.

Both funds aim to provide long-term capital appreciation through investment in large-cap and mid-cap companies. However, HDFC Large & Mid Cap Fund has a value orientation, while ICICI Prudential Large & Mid Cap Fund may prioritize growth stocks to a greater extent.

Performance Comparison: Rolling Returns

As we can see from the above table, both HDFC Large & Mid Cap Fund and ICICI Prudential Large & Mid Cap Fund have outperformed their benchmarks, across almost all timeframes. However, it's crucial to remember past performance is not a guarantee of future results.

ICICI Prudential seems to have outperformed in the short term (1 year), capturing a larger share of recent market gains. Over the medium term (3 & 5 years), both funds deliver similar, consistent growth. They also slightly outperform the benchmark over 3 and 5 years but fall behind the category average over both 3 and 5 years. This suggests the in the medium-term other are large & midcap peers gained higher returns.

Over the past decade, HDFC edges out ICICI with a CAGR of 17.21% compared to 14.96%. Both funds are marginally ahead of the category average but fall short of the benchmark. This indicates HDFC's strategy might be more suitable for long-term wealth creation, but both fall behind the broader market performance over this extended period.

While ICICI Prudential has shown strong recent performance, HDFC has demonstrated consistency over longer periods. Both funds have managed to align closely with their benchmarks and category averages, indicating effective management strategies.

This analysis only considers returns. Before making an investment decision, you should also evaluate the fund's expense ratio, portfolio holdings, and risk profile to see which aligns better with your investment goals.

Moreover, past performance should not be the only element, it's important to note that one may consider other factors like portfolio holdings, risk profile, and investment philosophy before making a decision.

The Sortino Ratio focuses on downside risk, and a higher value suggests potentially lower exposure to negative returns. A Sortino Ratio of 0.88 indicates that ICICI's fund has achieved a higher return for each unit of downside risk, reflecting relatively efficient risk management. Also lower at 0.78 compared to ICICI Prudential, HDFC Large & Mid Cap Fund indicates a relatively lower return for each unit of downside risk compared to ICICI Prudential.

Remember, this comparison is just to give you an idea about the risk profile of the two best large & mid cap mutual funds. Consider your risk tolerance and investment goals to determine which fund aligns better with your investment strategy.

• Portfolio Composition: Asset Allocation of Schemes

  Both HDFC Large & Mid Cap Fund and ICICI Prudential Large & Mid Cap Fund are popular choices for investments in large & mid cap segment, but their asset allocation strategies differ slightly.

  Scheme Name	Large Cap %	Mid Cap %	Small Cap %
  ICICI Prudential Large & Mid Cap Fund	51.19	38.94	6.32
  HDFC Large & Mid Cap Fund	50.38	35.49	10.37

  Data as of June 30, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)  

  Both ICICI Prudential Large & Mid Cap Fund and HDFC Large & Mid Cap Fund focus on investing in large & mid cap stocks, but their approach to diversification within that sector differs.

  ICICI Prudential Large & Mid Cap Fund and HDFC Large & Mid Cap Fund holds similar allocation towards large-cap stocks.

  These funds also have significant allocation to mid-cap stocks, 38.94% and 35.49% to ICICI Prudential Large & Mid Cap Fund and HDFC Large & Mid Cap Fund respectively. Mid-caps offer a balance between growth potential and stability, while small caps have the potential for higher returns but also carry greater risk.

  However, do note that HDFC Large & Mid Cap Fund holds a higher allocation to small-caps around 10.37% as compared to ICICI Pru Large & Mid Cap Fund. This suggests a potentially more aggressive approach targeting stability and growth.

• Market Volatility: Risk profile of Schemes

  Investing in sectoral funds may offer benefits from the growth potential of the underlying sector like - Infrastructure, however, understanding the scheme's risk-reward profiles is crucial before investing.

  Risk Ratio	ICICI Prudential Large & Mid Cap Fund	HDFC Large & Mid Cap Fund
  Standard Deviation (3 Year)	13.87	14.71
  Sharpe	0.41	0.38
  Sortino	0.88	0.78

  Data as of June 30, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)  

  An investment with high volatility is considered riskier than an investment with low volatility; the higher the Standard Deviation, the higher the risk. With a standard deviation of 13.87, ICICI Prudential Large & Mid Cap Fund has shown moderate volatility over the past 3 years. Slightly higher at 14.71 compared to ICICI Prudential, HDFC Large & Mid Cap Fund indicates a tad higher volatility over the same 3-year period.

  However, when it comes to rewards relative to risk, ICICI Prudential Large & Mid Cap Fund appears to be a slightly better option. Its Sharpe Ratio of 0.41 is slightly higher than the HDFC Large & Mid Cap Fund's 0.38. The Sharpe Ratio measures risk-adjusted returns, with a higher value indicating better reward for the level of risk undertaken.

• Top Holdings of the Schemes:

  While both HDFC Large & Mid Cap Fund and ICICI Prudential Large & Mid Cap Fund invest in the infrastructure sector, their specific holdings and sector allocation reveal some key differences:

  HDFC Large & Mid Cap Fund		ICICI Prudential Large & Mid Cap Fund
  Company	% Assets	Company	% Assets
  HDFC Bank Ltd.	5.38	ICICI Bank Ltd.	6.22
  ICICI Bank Ltd.	3.38	HDFC Bank Ltd.	4.83
  IndusInd Bank Ltd.	2.07	Maruti Suzuki India Ltd.	3.99
  Axis Bank Ltd.	1.94	SBI Cards And Payment Services Ltd.	2.85
  State Bank Of India	1.80	NTPC Ltd.	2.83
  Infosys Ltd.	1.69	Hindustan Petroleum Corporation Ltd.	2.76
  Power Finance Corporation Ltd.	1.54	Alkem Laboratories Ltd.	2.40
  Prestige Estates Projects Ltd.	1.49	Bharat Forge Ltd.	2.35
  Gland Pharma Ltd.	1.45	Infosys Ltd.	2.29
  Trent Ltd.	1.42	Gujarat Gas Ltd.	2.20

  Data as of June 30, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)  

  HDFC Large & Mid Cap Fund adopts a balanced approach by investing across both large-cap and mid-cap stocks, aiming to capitalize on growth opportunities while maintaining stability. Sector allocation within the fund reflects a diversified strategy across key sectors of the economy.

  The top holdings include significant allocations to financials with HDFC Bank Ltd. (5.38%) and ICICI Bank Ltd. (3.38%) leading the portfolio. This emphasizes the fund's confidence in the banking sector's stability and growth potential. Additionally, the fund holds positions in sectors such as pharmaceuticals, real estate, and information technology, with companies like Infosys Ltd. (1.69%) and Prestige Estates Projects Ltd. (1.49%) contributing to sectoral diversification. The allocation to these sectors underscores the fund's strategy to balance risk and reward across various industries, ensuring robust performance across market cycles.

  ICICI Prudential Large & Mid Cap Fund focuses on a diverse range of large-cap and mid-cap stocks, aiming to achieve optimal growth and manage risk effectively. The fund's sector allocation is strategically diversified, with notable exposures to sectors such as financials and automobiles. Top holdings include ICICI Bank Ltd. (6.22%) and HDFC Bank Ltd. (4.83%), reflecting a strong emphasis on the financial sector's stability and growth prospects.

  The fund also has significant positions in sectors such as automotive with Maruti Suzuki India Ltd. (3.99%), indicating a strategic bet on the recovery and growth potential in the auto industry. Other sectors represented in the fund's portfolio include energy, pharmaceuticals, and information technology, with stocks like NTPC Ltd. (2.83%) and Infosys Ltd. (2.29%) contributing to sectoral diversification and growth opportunities.

  Both funds exhibit strategic sectoral diversification with a focus on financials, reflecting confidence in the sector's stability and growth. However, HDFC Large & Mid Cap Fund leans slightly more towards information technology and real estate, while ICICI Prudential Large & Mid Cap Fund shows a stronger presence in the automotive sector.

• Expense Ratio of the Schemes

  When comparing mutual funds, the Expense Ratio, which represents the annual fee charged, plays a crucial role in determining your returns. Here's a quick breakdown of HDFC Large & Mid Cap Fund vs ICICI Prudential Large & Mid Cap Fund:

  Scheme Name	Direct Plan Expense Ratio	Regular Plan Expense Ratio
  HDFC Large & Mid Cap Fund	0.85%	1.69%
  ICICI Prudential Large & Mid Cap Fund	0.82%	1.74%

  Data as of June 30, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)  

  As you can see, ICICI Prudential Large & Mid Cap Fund has a significantly lower expense ratio for direct plan. Even a small percentage point difference can accumulate over time and impact your returns. Whereas, HDFC Large & Mid Cap Fund has a lower ratio in the regular plan as compared to ICICI.

  HDFC Large & Mid Cap Fund's higher expense ratio could have an impact on the investor's actual returns and thus, many may find ABSL PSU Equity Fund as a cost-effective option. Remember, a lower expense ratio translates to potentially higher returns over time, but a lower expense ratio should not be the only factor to be considered while investing in sectoral funds.

• Suitability of Investors to the Schemes:

  Both HDFC Large & Mid Cap Fund and ICICI Prudential Large & Mid Cap Fund are suitable for investors looking for a diversified portfolio of large & mid cap stocks with a bottom-up stock selection approach. It's ideal for investors with a moderate risk appetite. The fund offers an opportunity to investors to invest in blue chip & emerging companies, providing a balanced approach to capital appreciation and stability.

  The ICICI Prudential fund often emphasizes a dynamic allocation strategy, adjusting between large and mid-cap stocks based on market conditions and valuation opportunities. The HDFC fund, on the other hand, tends to maintain a more stable allocation, focusing on long-term growth and value opportunities within both segments.

  Although these funds focus on large & mid cap stocks they are not immune to the inherent market risks. Ensure they complement your existing portfolio allocation to spread risk.

The Market Outlook: Large & Mid Cap Segment

The outlook for the large and mid-cap segments in 2024 is closely tied to India's broader economic trajectory and policy landscape. India's GDP growth, projected to remain robust, underpins positive sentiment towards equities. The government's focus on infrastructure development, digital transformation, and manufacturing incentives, such as the Production Linked Incentive (PLI) schemes, is expected to create favourable conditions for both large and mid-cap companies.

In the large-cap segment, sectors like financial services, information technology, and energy are poised to benefit from structural reforms and increasing global integration. For mid-caps, sectors like healthcare, consumer discretionary, and technology services are expected to drive performance, fueled by domestic consumption and innovative export potential.

The increasing penetration of technology and the wave of green energy across sectors also supports growth in both segments, as companies leverage digital tools to enhance productivity and reach new markets. However, investors should remain cognizant of potential headwinds, including global economic uncertainties, inflationary pressures, and geopolitical risks that could impact market dynamics.

In conclusion, careful research and consideration of your risk tolerance are crucial before investing in any market-cap oriented fund. Ultimately, the best choice of large & midcap fund depends on your investment horizon and goals. Consulting a SEBI-registered financial advisor can be invaluable to ensure optimal alignment with your specific investment objectives.

Remember, a well-diversified portfolio across market caps/sectors and asset classes may help manage overall risk while potentially benefiting from its growth potential.

Disclaimer: PersonalFN does not receive any monetary compensation from the fund house or scheme names stated in the article.

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MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.
 

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.