{"id":1228,"date":"2019-10-23T12:57:43","date_gmt":"2019-10-23T12:57:43","guid":{"rendered":"https:\/\/blog.certifiedfinancialguardian.com\/?p=1228"},"modified":"2019-10-23T13:14:19","modified_gmt":"2019-10-23T13:14:19","slug":"does-it-make-sense-to-continue-sip-ping-into-a-small-cap-fund-now","status":"publish","type":"post","link":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/2019\/10\/23\/does-it-make-sense-to-continue-sip-ping-into-a-small-cap-fund-now\/","title":{"rendered":"Does It Make Sense To Continue SIP-Ping Into A Small-Cap Fund Now?"},"content":{"rendered":"\n

When you hear Systematic Investment Plans\n(SIPs), you immediately associate it to a diligent mode of investing in mutual\nfunds and rupee-cost averaging feature benefit along with the power of compounding\nto accumulate wealth for a long-term investment horizon.<\/p>\n\n\n\n

But before you begin SIP-ping, remember to\ncreate a goal-based financial plan considering the investment time horizon of\nyour goal and get your risk profile done. Only after that you choose the best equity\nfund that would suit your risk appetite and help you achieve your goal faster. <\/p>\n\n\n\n

If you are an aggressive investor and have\nan investment time horizon of more than five years, then you may consider\nSIP-ping mostly into Small-cap funds. Well, before you make a decision to\ninvest in small-cap mutual funds \u2013 note that they aren’t for the faint-hearted.\n<\/p>\n\n\n\n

According to the capital market regulator,\nSEBI, small-cap companies are defined as those that fall beyond the 250th stock\nin terms of full market capitalization. <\/p>\n\n\n\n

A noteworthy trait about small-cap\ncompanies is usually due to their low trading volume, the investment risk\nassociated with them is higher than with larger firms. Plus, there is an\ninherent risk involved due to their limited scale of operations, product lines,\nnarrow distribution channels, limited financial and managerial resources, and\ngreater sensitivity to dynamic economic conditions.<\/p>\n\n\n\n

Any adverse economic conditions or any\npolicy changes from the government of greater magnitude can have an undesirable\nimpact on the business of small-cap companies, and in turn on their\nbottom-line. On the other hand, when the economy is booming and business is on\nan upswing, small-cap companies do quite well, in terms of revenue growth and\nprofits, and sometimes even outpace the larger companies by a noteworthy\nmargin. <\/p>\n\n\n\n

Hence, small-cap mutual fund schemes that\ninvest a minimum 65% of its total assets in equity & equity related\ninstruments of small-cap companies (i.e. companies that are 251st onwards on a\nmarket capitalisation basis) have the tendency to go from thrilling highs to\ndangerous lows.<\/p>\n\n\n\n

From the graph given below, you can observe\nthe sharp fall and steep rise in the S&P BSE Small-Cap Index since October\n2017. In October 2018 the small-cap index witnessed a major beating and\ncontinues to be in a corrective phase. <\/p>\n\n\n\n

Graph\n1: Beaten Small caps. Should you invest?<\/em><\/strong><\/p>\n\n\n\n

\"\"<\/figure><\/div>\n\n\n\n

(Base: Rs 10,000)
Data as on October 22, 2019
(Source: ACE MF) <\/p>\n\n\n\n

But, in terms of valuations, the Nifty SmallCap Index is available at P\/E multiple of 51.3x, attractive valuation since last year’s P\/E of 61x. Only a handful of small-cap companies have abled to manage financial stress, and those who pile up massive debt are rarely able to manage repayments when the going gets tough.<\/p>\n\n\n\n

Having said that, if you invest in\nwell-managed small-cap funds that pick fundamentally robust companies at\nreasonable valuations (and have the potential of being tomorrow’s large caps),\nover the long-term (7-10 years) small-cap funds can generate handsome returns\nfor you. But make sure you have the stomach to assume very high risk. <\/p>\n\n\n\n

And if you look at the SIP performance of\nsome of the schemes for five years or more, the category average returns have\nperformed better than the Benchmark Index. Even among the worst-performing\nschemes, besides Canara Rob Small Cap Fund, Quant Small Cap Fund and IDBI Small\nCap Fund for a holding period of more than 5 years, small-cap funds have\nmanaged to perform in line with the benchmark index. <\/p>\n\n\n\n

On the other hand, the best performing schemes\nhave consistently outperformed the benchmark index in the 3-year, 5-year,\n6-year and 7-year time frames, respectively.  \n<\/p>\n\n\n\n

Table: Performance\nof SIPs in small-cap funds for varying times<\/em><\/strong><\/p>\n\n\n\n

\n Scheme\n Name<\/strong>\n <\/td>\n XIRR (%) <\/strong>\n <\/td><\/tr>
\n 1-year<\/strong>\n <\/td>\n 3-years<\/strong>\n <\/td>\n 5-years<\/strong>\n <\/td>\n 6-years<\/strong>\n <\/td>\n 7-years<\/strong>\n <\/td><\/tr>
\n Best performing\n schemes<\/strong>\n <\/td><\/tr>
\n Axis Small Cap Fund\n <\/td>\n 27.50\n <\/td>\n 12.74\n <\/td>\n 13.09\n <\/td>\n 15.62\n <\/td>\n 15.62\n <\/td><\/tr>
\n SBI Small Cap Fund\n <\/td>\n 10.26\n <\/td>\n 6.33\n <\/td>\n 12.49\n <\/td>\n 17.93\n <\/td>\n 20.83\n <\/td><\/tr>
\n Principal Small Cap Fund\n <\/td>\n 9.54\n <\/td>\n 9.54\n <\/td>\n 9.54\n <\/td>\n 9.54\n <\/td>\n 9.54\n <\/td><\/tr>
\n HDFC Small Cap Fund\n <\/td>\n -10.02\n <\/td>\n 0.50\n <\/td>\n 8.20\n <\/td>\n 11.06\n <\/td>\n 12.84\n <\/td><\/tr>
\n Nippon India Small Cap Fund\n <\/td>\n -3.61\n <\/td>\n -0.79\n <\/td>\n 7.64\n <\/td>\n 12.86\n <\/td>\n 17.01\n <\/td><\/tr>
\n L&T Emerging Businesses Fund\n <\/td>\n -7.91\n <\/td>\n -2.62\n <\/td>\n 7.34\n <\/td>\n 8.53\n <\/td>\n 8.53\n <\/td><\/tr>
\n Kotak Small Cap Fund\n <\/td>\n 6.65\n <\/td>\n 0.55\n <\/td>\n 6.19\n <\/td>\n 10.27\n <\/td>\n 12.69\n <\/td><\/tr>
\n Worst performing\n schemes<\/strong>\n <\/td><\/tr>
\n Canara Rob Small Cap Fund\n <\/td>\n -10.12\n <\/td>\n -10.12\n <\/td>\n -10.12\n <\/td>\n -10.12\n <\/td>\n -10.12\n <\/td><\/tr>
\n Quant Small Cap Fund\n <\/td>\n -25.58\n <\/td>\n -12.66\n <\/td>\n -5.93\n <\/td>\n -3.64\n <\/td>\n -2.32\n <\/td><\/tr>
\n IDBI Small Cap Fund\n <\/td>\n -0.78\n <\/td>\n -5.16\n <\/td>\n -5.16\n <\/td>\n -5.16\n <\/td>\n -5.16\n <\/td><\/tr>
\n Sundaram Small Cap Fund\n <\/td>\n -8.84\n <\/td>\n -9.79\n <\/td>\n -2.06\n <\/td>\n 3.98\n <\/td>\n 7.88\n <\/td><\/tr>
\n HSBC Small Cap Equity Fund\n <\/td>\n -8.73\n <\/td>\n -7.72\n <\/td>\n 0.17\n <\/td>\n 5.20\n <\/td>\n 9.04\n <\/td><\/tr>
\n Aditya Birla SL Small Cap Fund\n <\/td>\n -12.40\n <\/td>\n -8.95\n <\/td>\n 1.20\n <\/td>\n 6.09\n <\/td>\n 9.25\n <\/td><\/tr>
\n Union Small Cap Fund\n <\/td>\n 4.99\n <\/td>\n -2.35\n <\/td>\n 1.52\n <\/td>\n 2.12\n <\/td>\n 2.12\n <\/td><\/tr>
\n Category Average returns<\/strong>\n <\/td>\n -0.71<\/strong>\n <\/td>\n -1.19<\/strong>\n <\/td>\n 3.30<\/strong>\n <\/td>\n 5.88<\/strong>\n <\/td>\n 7.47<\/strong>\n <\/td><\/tr>
\n Benchmarks<\/strong>\n <\/td><\/tr>
\n S&P BSE Small-Cap – TRI\n <\/td>\n -9.48\n <\/td>\n -7.67\n <\/td>\n 0.57\n <\/td>\n 4.57\n <\/td>\n 7.68\n <\/td><\/tr><\/tbody><\/table><\/div><\/center>\n\n\n\n

Data as on October 22, 2019
For the calculation, monthly SIP instalment amount of Rs 1000 is considered.
(Source: ACE MF) <\/p>\n\n\n\n

*Please note, this table\nonly represents the best performing Small-Cap Funds based solely on past\nreturns and is NOT a recommendation. Mutual Fund investments are subject to\nmarket risks. Read all scheme related documents carefully. Past performance is\nnot an indicator for future returns. The percentage returns shown are only for\nan indicative purpose. Speak to your investment advisor for further assistance\nbefore investing.<\/p>\n\n\n\n

Hence, one can say that in a volatile environment, if you have invested in small cap fund, you must ought to review your investment portfolio to check if its performance is in line with your investment goal and time horizon. <\/p>\n\n\n\n

As amidst the slowdown in economy we are\ncurrently in due to the global and domestic concerns, the possibility of\ncontinued volatility in the equity markets cannot be ruled out. <\/p>\n\n\n\n

Due to sluggish consumption growth, slow\ntransmission of rate cuts, inflationary pressure, capital infusion and PSU bank\nmerger with liquidity concerns, most of the small cap companies will experience\nturbulence ahead. <\/p>\n\n\n\n

So, despite the corrected valuations in the\nsmall-cap space that provides the fund managers with the opportunity to do\nvalue picking. It remains to be seen how astutely the fund managers will\nconstruct the portfolio, and what adequate safeguards will they adopt to\ncontrol risks your investment could be exposed to in the portfolio in order to\nnot dilute the return potential of a small-cap fund.<\/p>\n\n\n\n

Besides, unless you have a very high-risk\nappetite, stagger your investments with small-cap oriented mutual funds; but\ndon’t ignore them totally \u2013 make sure to assess your risk appetite first.  <\/p>\n\n\n\n

Hence, as mentioned earlier, if you do invest via Systematic Investment Plan (SIP)<\/a> in small-cap mutual funds, this will help you to mitigate the risk due to the rupee-cost averaging feature. Also, invest diligently provided you have an investment time horizon of more than five years.<\/p>\n\n\n\n

As a rule of thumb before investing, evaluate\nthe small-cap funds based on its qualitative and quantitative parameters which\npoint out the performance across various across market cycles and phases. The\nparameters also indicate to the fund houses that have robust systems and\nprocesses in place to deal with any market shocks and undercurrents. <\/p>\n\n\n\n

 Watch\nthis short video on selecting mutual fund schemes:<\/p>\n\n\n\n

\n \"\"<\/a>\n<\/center>\n\n\n\n

<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

When you hear Systematic Investment Plans (SIPs), you immediately associate it to a diligent mode of investing in mutual funds and rupee-cost averaging feature benefit along with the power of compounding to accumulate wealth for a long-term investment horizon. But before you begin SIP-ping, remember to create a goal-based financial plan considering the investment time…<\/p>\n","protected":false},"author":4,"featured_media":1233,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"cybocfi_hide_featured_image":""},"categories":[3],"tags":[],"_links":{"self":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts\/1228"}],"collection":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/comments?post=1228"}],"version-history":[{"count":2,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts\/1228\/revisions"}],"predecessor-version":[{"id":1236,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts\/1228\/revisions\/1236"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/media\/1233"}],"wp:attachment":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/media?parent=1228"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/categories?post=1228"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/tags?post=1228"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}