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The HDFC Small Cap Fund is an open-ended equity mutual fund that invests the majority of its corpus in equity and equity related instruments of small-cap companies. The fund seeks to invest in small-cap stocks, as companies in this market segment have the potential to become market leaders tomorrow. As this fund is a primarily equity-based fund it has the potential to provide investors with superior returns but also carries a considerable amount of risk as it is exposed to market volatility through its equity investments. This fund is a very good long-term investment for retirement goals or children’s education.

Performance

The HDFC Small Cap Fund is presently closely tracking its base index, the Nifty Small Cap 100. The fund is historically known to be volatile in nature and it and performs well in long investment horizons of at least 5 years. The Net Asset Value (NAV) of the fund on 7th December 2018 was Rs. 41,1480, which is currently among the highest in the Small Cap Fund segment. Due the high equity exposure in the fund, it is prone to market volatility, which is quite prevalent in the Small Cap Equity Market. The performance of the fund against the NIFTY Smallcap 100 TRI and its category has been provided in the chart below.

 

Expected Returns

The HDFC Small Cap Fund is one of the top performing funds in its category. It has good performance over a 3 to 5-year investment horizon and has a high Alpha of approximately 7.58% and a low beta of approximately 0.82%, making its risk-adjusted returns relatively high when compared to its peers. The fund is primarily equity-based is exposed to market fluctuations, but with low beta, is not over-sensitive to fluctuations.

 Methods of Investment

Investors can invest in the HDFC Small Cap Fund in a lump sum or through a Systematic Investment Plan (SIP). The fund can either be procured through an agent or bank via the regular method or directly through apps such as CAMS, KARVY, Piggy or the HDFC Mutual Fund house or the Asset Management Company (AMC). The advantage of investing in the fund directly is that there will be no brokerage charges, which will increase the overall returns by 1%. Investing through a SIP will give the investor the added advantage or Rupee Cost Averaging, as an investor invests a predetermined amount every month into the fund, the number of units being procured changes according to the prevailing market trends, as the price of units goes up the number of units being procured goes down and as the price goes down, the number of units being procured goes up, this causes the average price per unit to come down over a period of time.

 Investment Philosophy

The HDFC Small Cap Fund is an equity-based mutual fund which carries a small-cap bias. The fund primarily looks for investment opportunities within the small-cap segment but does not restrict itself to this segment. Under certain market and macro-economic conditions, this bias can be shifted towards the mid-cap segment of the market. The fund also invests approximately 10% – 15% in debt and other stable money market instruments to counteract the effect of market volatility on the fund to a certain extent. As this is an open-ended scheme the fund manager has the ability to change the composition of investments based on the prevailing market conditions. Listed below is the asset allocation that is mandated by HDFC Mutual Fund for this fund:

 

Instrument

Minimum – Maximum

Risk Profile

Equity

80% – 100%

High

Debt

0 – 20%

Low – Medium

 

Portfolio

The HDFC Small Cap Fund is a highly diversified mutual fund that invests across sectors in small-cap and mid-cap companies mainly. Presently, the fund allocates the highest weights to Consumer Cyclical goods, Basic Materials and Finance sectors. The fund also has a healthy mix of small-cap and mid-cap funds to optimize the returns to investors. The diversified portfolio of this fund has allowed it to maintain a relatively low beta of below 1%. The various sectors in which this fund is invested have been shown in the chart below:

Fund Managers

Mr. Chirag Setalvad

Mr. Chirag Setalvad graduated from the University of North Carolina with a Bachelor of Science degree in Business Administration. From October 2004 to February 28, 2007 Mr. Setalvad served as the Vice-President of New Vernon Advisory Service Pvt. Ltd., before joining as a Senior Fund Manager of Equities at HDFC Asset Management Company Limited. He is currently the Fund Manager for the HDFC Small Cap Fund.

 Peer Comparison

Fund

CRISIL Rating

3Year Returns

Min SIP Investment

Min Investment

Fund Size (Cr.)

Aditya Birla Sun Life Small Cap Fund Dividend Payout – Direct Plan

3

10.65%

Rs. 1,000

Rs. 5,000

Rs. 2019.96

L&T Emerging Business Fund Direct Dividend Payout

4

16.15%

Rs. 1,000

Rs. 5,000

Rs. 5162.98