Exploring SBI Small Cap Fund: A Potential Investment Option?
The SBI Small Cap Fund, a part of SBI Mutual Fund, has been making waves in India's small-cap market. This fund, which invests predominantly in small-cap companies, has been delivering superior long-term returns while managing the risks inherent in this space.
One of the key factors contributing to its success is its focused investment strategy. According to SEBI norms, around 80% of the fund is invested in small-cap companies, which have higher growth potential compared to large-cap firms, though with higher volatility. This strategy allows the fund to capitalise on the growth potential of small companies while managing the associated risks effectively.
Skilled fund management plays a crucial role in the SBI Small Cap Fund's performance. The fund managers employ a long-term, disciplined investment approach that balances risk and return, aiding consistent performance. R Srinivasan, the fund manager, is known for picking solid businesses with a competitive edge, decent return on investment, scalability, high cash conversion, low capital intensity, and pricing power.
Effective asset allocation and diversification are other critical factors. Although primarily small cap, the fund diversifies across sectors and possibly some exposure in mid or large caps, helping to mitigate risks associated with the small-cap segment’s volatility.
The SBI Small Cap Fund has consistently outperformed many peers, with Systematic Investment Plan (SIP) returns around 19.58% annually over three years. This indicates good compounding benefits and stable growth. Being part of SBI Mutual Fund, which benefits from the backing, extensive network, and reputation of the State Bank of India, adds credibility, resources, and investor confidence to the fund.
Cost efficiency is another advantage. The expense ratio and charges are managed within regulatory limits, supporting better net returns to investors as high expenses can erode gains in mutual funds.
As of November 2020, the SBI Small Cap Fund has avoided exposure to large caps, which is different from many other small-cap funds. It also has a lower turnover ratio compared to many other small-cap funds, as indicated by the data from Morningstar.
The SBI Small Cap Fund is one of the best-performing small-cap funds over the past 10 years. If you had invested Rs 10,000 in the fund 10 years ago, you would be sitting on Rs 89,043 today, with an annualized return of 24.44%. The fund has managed to beat the category in 7 out of 10 calendar years and the benchmark in 8 out of 10 calendar years in terms of annual returns.
R Srinivasan, the fund manager, has halted lump-sum and SIP investments, which has helped the fund to be frequently at the top of the charts. The fund has a consistent track record in terms of downside protection, performing better in 10 out of 16 quarters when the NIFTY 50 TRI had negative returns.
The SBI Small Cap Fund has a massive AUM of over Rs 15,000 crore (as of February 2023). It is recommended for investors who want portfolio exposure to small caps, are prepared to withstand greater volatility, and have an investment horizon of at least seven years.
However, it is important to note that the SBI Small Cap Fund is associated with high volatility and risk. Investors can start their investment journey in mutual funds without paying any commission through the mentioned platform and track all their investments in one place.
As of March 29, 2023, the SBI Small Cap Fund has annualized returns of 24.44% since inception. The fund has consistently beaten its benchmark and the category in terms of average 10-year rolling returns. It has overweight positions in sectors like Capital Goods (13.25%) and FMCG (9.69%) compared to the category average.
In conclusion, the SBI Small Cap Fund is a strong choice for investors seeking exposure to the small-cap market in India. Its disciplined investment approach, skilled fund management, and focus on risk management make it a reliable option for those with a long-term investment horizon.
Investing in mutual funds can include the SBI Small Cap Fund, a fund from the finance sector that focuses on small-cap companies for higher growth potential while managing risks. This fund, managed by R Srinivasan, employs a disciplined long-term investment strategy, effectively allocates assets, and diversifies across sectors to mitigate risks associated with the small-cap market's volatility. The fund has a remarkable historical performance, often outperforming its peers and benchmark, and maintaining a lower turnover ratio compared to many other small-cap funds.
