Small Cap Fund issued by SBI: Is It Worth Your Investment?
The SBI Small Cap Fund, managed by R Srinivasan, has established itself as one of the leading small-cap funds in India. Over the past decade, the fund has consistently outperformed its benchmark and category, making it an attractive choice for investors seeking exposure to small caps.
Impressive Track Record
In 8 out of 10 calendar years, the SBI Small Cap Fund has managed to beat the category in terms of beating the benchmark. Since its inception in 2010, the fund has delivered strong long-term performance, with a 10-year CAGR (compound annual growth rate) of approximately 19.4%. This places it among the better-performing small-cap funds in India over the past decade.
Portfolio Composition and Investment Strategy
The SBI Small Cap Fund primarily invests about 91.8% in equity, focusing on small-cap stocks with potential for high growth. The portfolio is diversified across various sectors but leans towards small-cap companies that can offer multi-bagger returns if their businesses succeed. The fund's approach involves active management by experienced fund managers who specialize in identifying promising but under-researched small-cap companies, balancing opportunity and risk.
Risk Profile and Downside Protection
Given the inherent volatility in small-cap stocks, the SBI Small Cap Fund carries a very high risk rating. However, the fund has shown reasonable risk-adjusted returns over multi-year periods, demonstrating some resilience in uncertain or volatile market cycles.
Experts recommend investing via SIP (Systematic Investment Plan) or STP (Systematic Transfer Plan) for gradual accumulation over long periods (e.g., 10 years) rather than lump-sum investments, as current valuations in small caps are relatively high, increasing the risk of short-term corrections.
Suitability for Investors
The SBI Small Cap Fund is suitable for investors with a high risk appetite, seeking potentially superior long-term capital appreciation. Investors need to be prepared for significant volatility and be comfortable with the fund’s long-term horizon (10+ years). It is advisable to maintain a balanced asset allocation and consider trimming exposure if small-cap holdings grow too large in the portfolio.
Key Highlights
- The SBI Small Cap Fund has outperformed its benchmark and the category across time frames since its inception in 2010.
- In comparison to the benchmark, the SBI Small Cap Fund has earned around 11.75 percentage points higher annualized returns since its launch.
- In comparison to the category average, the SBI Small Cap Fund has earned around 6.40 percentage points higher annualized returns since its launch.
- The fund's average 10-year rolling returns are 23.72%, higher than the category average of 17.32%.
- As of March 29, 2022, the annualized return of the SBI Small Cap Fund was 24.44%.
Investing in small caps requires a willingness to withstand greater volatility and a long-term investment horizon of at least seven years. With its strong long-term performance, focus on high-growth small-cap stocks, and experienced management, the SBI Small Cap Fund is one of the top-performing small-cap funds. However, it remains a high-risk investment that requires disciplined, long-term investing and risk tolerance. Using SIPs and portfolio rebalancing can help mitigate risk and harness the fund’s growth potential effectively.
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Investing in the SBI Small Cap Fund can be an effective way to capitalize on the potential for high-growth small-cap stocks, given its strong performance and focus on promising small-cap companies. The fund's track record demonstrates its ability to beat both the benchmark and the category in various timeframes, making it an attractive choice for investors with a high risk appetite seeking long-term capital appreciation.
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