Large cap mutual funds have remained under pressure compared to mid cap and small cap funds across multiple time horizons. While mid and small cap categories have generated significantly stronger returns during the broader market rally, large cap funds have struggled to keep pace, particularly in shorter timeframes where returns have remained muted or even negative. However, this recent underperformance by large caps has made investors think about where they should invest for stability.According to market experts, the recent valuations have made the large cap funds relatively attractive and one must gradually increase the allocation in large cap funds as they provide better stability and reduce the overall volatility in the portfolio.Also Read | Can a Rs 90 lakh mutual fund portfolio grow to Rs 5 crore in 7 years? Here’s the ideal strategy to consider Pallav Agarwal, Certified Financial Planner at Bhava Services LLP, told ETMutualFunds that large caps are at more attractive valuations as compared to mid and small cap precisely due to this underperformance and the investors should increase their allocation towards large cap funds both for stability and better returns.Echoing a similar view, Shivam Pathak, CFP and Founder of Asset Elixir shared with ETMutualFunds that recent underperformance has made large caps relatively attractive from a valuation perspective and investors may consider increasing allocation gradually, as large caps can provide better stability and help reduce overall portfolio volatility.According to the analysis by ETMutualFunds, large cap funds have underperformed mid caps and small caps in different horizons such as one month, three month, six month, one year, YTD, three years and five years.The analysis further showed that the performance by large caps has been in the negative territory in shorter time periods and in positive in the longer horizon.In the last one month, where small caps gained 2.16%, mid caps gained 1.27%, the large caps lost 2.72%. In the last six months, small caps and mid caps lost 0.19% and 1.01%, large caps were down 7.50%. In the last one year and the current calendar year where the small caps and mid caps are in positive territory, large caps ended in red. The large caps posted a return of 11.89% in the last three years, small caps and mid caps posted a return of 18.20% and 20.79% respectively and in the last five years, the situation remained similar.Where to allocate for stability and lower volatilityPost seeing the historical performance, where should investors allocate for stability and lower volatility and should first time investors prefer large caps in the current market scenario? Responding to this, Pathak said for stability, investors can prefer large cap or flexi cap funds with a large-cap bias and first-time investors may start with large cap funds as they offer a smoother investment experience.Agarwal said for lumpsum investments, hybrid funds, specially multi asset allocation funds will offer better stability and lower volatility. However, if the investment is being done through SIP, large cap funds along with flexi cap funds having high allocation in large cap stocks make more sense for the first-time investors.According to a report by Tata Mutual Fund, headline valuation premium for Nifty Smallcap 100 vs Nifty 50 has surged to nearly 18% by the end of April 2026 from 12% by end of previous month. Also Read |Mirae Asset Midcap among 12 equity mutual funds that deliver over 10% return in 1 year. Do you own any? Amid high valuations within the small cap space vs large caps and global peers. Current valuation metrics suggest the relative attractiveness of large caps over mid and small caps as they offer better risk-reward, the report further highlighted.For the midcap segment, the report by Tata Mutual Fund said that broad-based economic & investment cycle recovery implies sustained opportunities in mid and small caps in the long term. SIP investors: Better with small caps and mid caps or prefer large caps?The strong rally in mid cap and small cap funds over the last few years has also led many investors to aggressively allocate fresh SIP money towards these categories. However, experts now suggest investors may need to gradually rebalance portfolios to avoid excessive concentration risk.Agarwal said that after a good rally in mid and small cap funds in the month of April, the SIP investors should shift some of their SIPs from mid and small cap funds to large cap funds to benefit from higher accumulation of units at attractive valuations. Historically, we have seen that investments done at reasonable valuations deliver more returns. Pathak said that SIP investors can continue with mid and small caps if they have a long-term horizon. However, gradually increasing large cap exposure can help balance risk and reduce portfolio volatility.Monthly inflow trendAccording to the monthly data released by AMFI, large-cap mutual funds witnessed a 16% decline in inflows in April, while mid-cap and small-cap funds continued to attract strong investor interest with monthly growth of 8% and 10%, respectively. Large-cap funds received inflows of around Rs 2,525 crore in April, lower than the previous month's inflow of Rs 2,997 crore. In contrast, mid-cap funds attracted approximately Rs 6,551 crore, while small-cap funds received nearly Rs 6,885 crore in April.Also Read | Large-cap funds see 16% decline in inflows while mid- and small-cap funds gain traction. Are investors shifting towards riskier bets?Pathak said that large caps look stable and defensive, mid caps may offer long-term growth but can remain volatile and small caps carry higher risk and should be suitable only for aggressive investors with a long-term view.Agarwal said that large cap stocks look better placed right now due to reasonable valuations and are likely to hold up well if markets stay uncertain; mid and small caps can still deliver over five years, but fresh money at current levels should be allocated towards large cap funds more.(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)If you have any mutual fund queries, message on ET Mutual Funds on Facebook/Twitter. We will get it answered by our panel of experts. Do share your questions on ETMFqueries@timesinternet.in alongwith your age, risk profile, and twitter handle