Nippon India Small Cap Fund | How this largest small-cap fund tripled your money in 3 years
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Nippon India Small Cap is
Nippon India Small Cap is the largest fund in the category. In spite of its size, it has managed to deliver good returns. A monthly SIP of Rs 10,000 started five years ago in Nippon India Small Cap would have turned into more than Rs 13 lakh (as of June-end 2023; total investment Rs 6 lakh). As of June-end 2023, the fund had assets of over Rs 32,000 crore.
In an interview with Morningstar, Samir Rachh, the fund manager of Nippon India Small Cap, revealed his investing strategy. He said that he diversifies the portfolio a lot, which helps him reduce risk, ride his winners and improve returns. We decided to check if that indeed is the case. We also wanted to assess if the fund can continue to do well in spite of its growing size.
If we see the number of stocks in the fund’s portfolio, they are quite high. As of June-end 2023, they stood at 180. Nippon India Small Cap does have a much higher number of stocks as compared to its category peers. So, it appears that the portfolio is quite diversified.
However, when we checked the number of stocks by quartile, we found that the top 3 quartiles have had 53 to 85 stocks between 2019 and 2023. That means 75% of the AUM has been in just those many stocks and the rest of the stocks in the fund’s portfolio just comprise its tail. This is possibly the reason for the fund’s outperformance despite its large number of stocks.
Nippon India Small Cap also buys stocks outside the Nifty Smallcap 250 index and hence possibly ventures into micro caps. Micro caps have a higher return potential and these micro caps may also have contributed to the returns.
The fund has 47 stocks in its current June-end portfolio that it has held for the last 5 years. The average return from these stocks is a respectable 19% per annum over the last 5 years. So, the fund does ride its long-term winners.
In terms of sectors, Nippon India Small Cap takes more concentrated calls than the category. Sectoral calls could also be behind the fund’s outperformance.
While the fund exhibits higher volatility as compared to the category and benchmark, it has managed to deliver decent risk-adjusted returns.
As far as the size of this fund is concerned, it could be a problem but so far it has not been. Still, the share of large caps has gone up in the fund’s asset allocation. Also, it has put restrictions on its inflows.
It remains to be seen how Nippon India Small Cap does in the future. We have provided the information needed for you to decide whether you should invest in this fund or what you should do with your existing investments. Decide wisely.
Chapters
00:00 Introduction
02:00 How is Nippon India Small Cap Fund Managed?
03:10 Number and Concentration of Stocks in Nippon India Small Cap Fund
04:10 Is Nippon India Small Cap Fund Too Diversified?
07:12 High-Conviction, Long-Term Bets
08:12 Sectoral Concentration
09:02 Volatility and Risk-Adjusted Returns of Nippon India Small Cap Fund
11:10 Can the Size be a Problem?
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In an interview with Morningstar, Samir Rachh, the fund manager of Nippon India Small Cap, revealed his investing strategy. He said that he diversifies the portfolio a lot, which helps him reduce risk, ride his winners and improve returns. We decided to check if that indeed is the case. We also wanted to assess if the fund can continue to do well in spite of its growing size.
If we see the number of stocks in the fund’s portfolio, they are quite high. As of June-end 2023, they stood at 180. Nippon India Small Cap does have a much higher number of stocks as compared to its category peers. So, it appears that the portfolio is quite diversified.
However, when we checked the number of stocks by quartile, we found that the top 3 quartiles have had 53 to 85 stocks between 2019 and 2023. That means 75% of the AUM has been in just those many stocks and the rest of the stocks in the fund’s portfolio just comprise its tail. This is possibly the reason for the fund’s outperformance despite its large number of stocks.
Nippon India Small Cap also buys stocks outside the Nifty Smallcap 250 index and hence possibly ventures into micro caps. Micro caps have a higher return potential and these micro caps may also have contributed to the returns.
The fund has 47 stocks in its current June-end portfolio that it has held for the last 5 years. The average return from these stocks is a respectable 19% per annum over the last 5 years. So, the fund does ride its long-term winners.
In terms of sectors, Nippon India Small Cap takes more concentrated calls than the category. Sectoral calls could also be behind the fund’s outperformance.
While the fund exhibits higher volatility as compared to the category and benchmark, it has managed to deliver decent risk-adjusted returns.
As far as the size of this fund is concerned, it could be a problem but so far it has not been. Still, the share of large caps has gone up in the fund’s asset allocation. Also, it has put restrictions on its inflows.
It remains to be seen how Nippon India Small Cap does in the future. We have provided the information needed for you to decide whether you should invest in this fund or what you should do with your existing investments. Decide wisely.
Chapters
00:00 Introduction
02:00 How is Nippon India Small Cap Fund Managed?
03:10 Number and Concentration of Stocks in Nippon India Small Cap Fund
04:10 Is Nippon India Small Cap Fund Too Diversified?
07:12 High-Conviction, Long-Term Bets
08:12 Sectoral Concentration
09:02 Volatility and Risk-Adjusted Returns of Nippon India Small Cap Fund
11:10 Can the Size be a Problem?
#ETMoney
👉 To invest in Direct Plans of top Mutual Funds for free, download the ET Money app: https://etmoney.onelink.me/unJQ/5ca1ae3b
👉 Subscribe to ET Money Hindi
@etmoneyhindi
👉 Read more such informative articles at https://www.etmoney.com/blog
👉 Follow us on:
► Facebook: Facebook: ETMONEY
► Twitter: Twitter: etmoney
► Instagram: Instagram: etmoney_official
► LinkedIn: LinkedIn: et_money
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