For the investor focused on wealth creation, especially via direct stocks, small and micro caps is the most attractive zone. The large caps are done and dusted, the mid-caps are covered enough too.
But, picking a stock directly is not so easy. So it is wise to outsource the job to a manager of a mutual fund and invest in a small cap fund.
In small cap funds, a large portion of the investment is done in companies with small market capitalization i.e. the companies after large and mid-caps. Small-cap funds are highly risky and volatile investment instruments but have exponential growth potential and give high returns on investment.
Among small-cap schemes that focus on the quality of companies, HDFC Small Cap Fund has distinguished itself by performing consistently well by sticking to its investment mandate.
It is the most famous small-cap fund in the market right now. To know more about this fund and how it fares, read more below.
In this article
- HDFC Small Cap Fund Direct
- HDFC Small Cap Direct NAV
- HDFC Smallcap Fund’s Objective
- HDFC Small Cap Growth Details
- HDFC Smallcap Direct Fund‘s Performance
- HDFC Small Cap Fund vs Reliance Small Cap Fund vs L&T Emerging Businesses Fund
- HDFC Small Cap Shares: Holding Analysis
- Change in Portfolio of HDFC Small Cap Fund
- HDFC Small Cap Fund Manager
- How Much to Invest in This Fund to Get ₹ 1 Cr
- Past Performance of HDFC Small Cap and History
- About HDFC Mutual Fund
Volatility has clearly dug in its heels in equity markets this year, and therefore, mutual fund investors in pursuit of good returns need to stay with schemes that invest in quality companies that have performed well in the past few quarters.
This quality factor needs to encompass not just earnings growth but also management credibility and other key financial parameters.
Being a small cap fund, this fund is best suited for investors with high risk appetite and who have long investment horizon say 15-20 years to get its true reward. Lets look into various aspects of this fund.
HDFC Small Cap Direct NAV
The NAV of HDFC Small Cap Fund (Direct): 49.828 as of 5th May 2018.
The NAV of the direct version of any fund will always be higher than that of its regular counterpart.
HDFC Smallcap Fund’s Objective
The investment objective of this scheme is to generate long-term capital growth from an actively managed portfolio of equity and equity-related securities including equity derivatives.
HDFC Small-Cap Direct may also invest a certain portion of its corpus in debt and money market securities.
This scheme under normal circumstances will invest
- 80% – 100% to Small-Cap and Mid-Cap companies.
- 0% – 20% to other market instruments.
HDFC Small Cap Growth Details
Before start investing in any mutual fund scheme, you should look into some basic key features.
Here is the key information about HDFC Small Cap Fund Growth Direct.
|Launch Date||01 January 2013|
|Fund Category||Equity – Small Cap|
|Rating by Groww||5 Star|
|AUM (Fund Size)||₹2,152 crores|
|Performance w.r.t its Benchmark||Has consistently outperformed its benchmark NIFTY Smallcap 100 TRI since its launch.|
|Age of the fund||5 years old|
|Exit Load||If redeemed between 0 Year to 1 Year; Exit Load is 1%;|
HDFC Smallcap Direct Fund‘s Performance
This fund has given high returns over the years and has consistently outperformed its benchmark. It is a fund with high risk and has given a return of 24.19% since its launch.
While the fund has undoubtedly scored on the performance front, it has also managed to keep its risk metrics lower than the benchmark thereby resulting in an improved risk-reward profile.
HDFC Small Cap Fund vs Reliance Small Cap Fund vs L&T Emerging Businesses Fund
Let us compare this fund with other top 3 contenders in the small-cap category.
|Other top Funds||Returns over the years||Min SIP Investment||Fund Size (Cr)||Rating|
|Reliance Small Cap Fund – Direct||27.49%||27.24%||38.73%||₹ 100||₹6371||5|
|L&T Emerging Businesses Fund – Direct||27.87%||28.57%||NA||₹ 500||₹4286||5|
|Sundaram SMILE Fund – Direct||14.14%||16.95%||30.15%||Not Supported||₹1481||4|
As seen from the table, HDFC Small Cap Fund is easily one of the best performing small-cap funds in the market today.
With such consistently high returns, this fund has managed to outperform nearly all other funds in its category. It has the perfect fund size and offer different investment medium.
Top 10 holdings in stocks:
HDFC Small maintains a portfolio of 68 stocks.
The top 10 stocks command a total allocation of 25%. The portfolio is extremely diversified as the weight age of stocks in the top 10 holdings vary from 2%-3% of the portfolio.
|Name of the Instrument||Industry||% NAV|
|Sonata Software Ltd.||Software||3.46|
|Redington (India) Ltd.||Transportation||3.19|
|Carborundum Universal Ltd.||Industrial Products||3.07|
|SKF India Ltd.||Industrial Products||3.02|
|Chambal Fertilizers & Chemicals Ltd.||Fertilisers||2.33|
|LG Balakrishnan & Bros Ltd.||Auto Ancillaries||2.30|
|PNC Infratech Ltd.||Construction||2.08|
|TV Today Network Ltd.||Media And Entertainment||2.02|
|Sharda Cropchem Ltd.||Pesticides||2.01|
While the fund manager doesn’t follow any value or growth style of investing for the fund, they seek to ensure that the fund is invested completely at all times and reflect the highest conviction stocks in the mid and small cap space.
Current top 5 equity sector allocation:
|Sector allocation||Current % NAV|
The fund managers primarily look for strong management, robust fundamentals, sustainability and demand of business before including any stock in the portfolio.
This has resulted in the fund having a higher exposure to domestically oriented sectors with sectors such as Industrial, Auto Ancillaries and Construction accounting for nearly 50% of total portfolio.
Equity size breakup:
The fund seeks to invest primarily in the small and mid-cap category and thus has around 2/3rd of its allocation of mid-cap space followed by around 35% in small-cap space and the remainder in large cap. This results in the fund having SMID/Large ratio to 15.39 times.
Change in Portfolio of HDFC Small Cap Fund
From 1st July 2016, mutual funds got extra transparent.
SEBI asked fund to additionally disclose certain information in the offer documents for existing and in the new schemes. This includes monthly portfolio changes made by the fund house.
Let us look into how much the fund managers of the HDFC Small Cap Fund – Direct – Growth have made changes in the fund’s portfolio in 2018.
New Shares Bought by HDFC Small Cap Fund
11 new investment done in 2018. The no. of shares bought for these new investments and industry they belong to are:
|Name of the Instrument||Industry||No. of shares bought||Current % NAV|
|Chambal Fertilizers & Chemicals Ltd.||Fertilisers||4203200||2.33|
|Sharda Cropchem Ltd.||Pesticides||1562200||2.01|
|EIH Ltd.||Hotels, Resorts And Other Recreational Activities||3249239||1.74|
|Firstsource Solutions Ltd||Software||9619000||1.72|
|Greenlam Industries Ltd.||Consumer Durables||401000||1.62|
|eClerx Services Ltd.||Software||291470||1.18|
|Lemon Tree Hotels Ltd.||Hotels, Resorts And Other Recreational Activities||4634055||0.87|
|CG Power & Industrial Solutions Ltd.||Industrial Capital Goods||2787500||0.73|
|Taj GVK Hotels & Resorts Ltd.||Hotels, Resorts And Other Recreational Activities||1192709||0.66|
Shares Sold by HDFC Small-cap Fund
As many as 12 companies stocks were dis-invested in 2018. The companies are:
|Name of the Instrument||Industry||complete disinvestment|
|Aarti Industries Ltd.||Chemicals||553300 shares|
|KEC International Ltd.||Construction Project||1563700 shares|
|Dilip Buildcon Ltd.||Construction||600000 shares|
|Balkrishna Industries Ltd.||Auto Ancillaries||463000 shares|
|Larsen & Toubro Infotech Ltd.||Software||377200 shares|
|VIP Industries Ltd.||Consumer Durables||1157050 shares|
|City Union Bank Ltd.||Banks||2439117 shares|
|Hexaware Technologies Ltd.||Software||1000000 shares|
|IFB Industries Ltd.||Consumer Durables||287005 shares|
|Sundram Fasteners Ltd.||Auto Ancillaries||599500 shares|
|Century Plyboards (India) Ltd.||Consumer Durables||715000 shares|
|Avanti Feeds Ltd.||Consumer Non Durables||30778 shares|
Change in Allocation of HDFC Smallcap Fund
The major changes made in equity share portfolio by the fund manager in 2018 are as follows:
|Name of the Instrument||Industry||Current % NAV||% Change in quantity of shares||Description|
|Redington (India) Ltd.||Transportation||3.19||63.75%||2507000 additional shares are bought in 2018|
|Carborundum Universal Ltd.||Industrial Products||3.07||90.29%||1245947 additional shares are bought in 2018|
|SKF India Ltd.||Industrial Products||3.02||288.46%||379900 additional shares are bought in 2018|
|PNC Infratech Ltd.||Construction||2.08||80.92%||1572335 additional shares are bought in 2018|
|Kalpataru Power Transmission Ltd.||Power||1.89||52.54%||400000 additional shares are bought in 2018|
|Vesuvius India Ltd.||Industrial Products||1.84||181.92%||270000 additional shares are bought in 2018|
|Aurobindo Pharma Ltd.||Pharmaceuticals||1.84||227%||681000 additional shares are bought in 2018|
|Atul Auto Ltd.||Auto||1.81||103.62%||618342 additional shares are bought in 2018|
|Vardhman Textiles Ltd.||Textiles – Cotton||1.79||210.72%||295000 additional shares are bought in 2018|
|Power Mech Projects Ltd.||Construction Project||1.78||83%||282646 additional shares are bought in 2018|
|Apar Industries Ltd.||Industrial Capital Goods||1.76||68.08%||290000 additional shares are bought in 2018|
|Jagran Prakashan Ltd.||Media And Entertainment||1.72||117.87%||1600000 additional shares are bought in 2018|
|Sadbhav Engineering Ltd.||Construction Project||1.72||133.58%||750000 additional shares are bought in 2018|
|Nilkamal Ltd.||Industrial Products||1.7||47.07%||106448 additional shares are bought in 2018|
|Tube Investments of India Ltd.||Auto Ancillaries||1.55||268.28%||1505010 additional shares are bought in 2018|
|Insecticides (India) Ltd.||Pesticides||1.52||165.2%||410000 additional shares are bought in 2018|
|Great Eastern Shipping Company Ltd.||Transportation||1.45||100.88%||654000 additional shares are bought in 2018|
|D.B.Corp Ltd.||Media And Entertainment||1.17||116.96%||600000 additional shares are bought in 2018|
|GNA Axles Ltd.||Auto Ancillaries||0.83||75.29%||242200 additional shares are bought in 2018|
**The data taken here is from January to March 2018. As April monthly portfolio change is yet to published by HDFC Mutual Fund.
As we can see from the tables above, the fund manager of HDFC Small Cap Fund, has made huge changes in the portfolio in 2018.
This is due to the announcement of budget 2018. The fund manager has aligned the fund to the new announcement so that the fund can meet its objective.
This fund is managed by Mr. Chirag Setalvad and Mr. Rakesh Vyas. They both have immense experience in the financial markets of India.
Chirag Setalvad since Jun 2014
Education: Mr. Setalvad is a B. Sc and MBA from University of North Carolina.
Experience: Prior to joining HDFC AMC he has worked with New Vernon Advisory Services Ltd., HDFC AMC and ING Barings N.V.
Top funds managed are:
- HDFC Balanced Fund – since Apr 2007
- HDFC Children’s Gift Fund – since Apr 2007
- HDFC Mid-Cap Opportunities Fund – since May 2007
Rakesh Vyas since Jun 2014
Education: Mr. Vyas is a B.E (Electrical) and PGDM (Business Management) from XLRI Jamshedpur.
Experience: Prior to joining HDFC Mutual Fund in 2009 he has worked with Lehman Brothers and Nomura.
Top funds managed are:
- HDFC Corporate Debt Opportunities Fund- since Mar 2014
- HDFC Banking and PSU Debt Fund – since Mar 2014
- HDFC Large Cap Fund – since Jun 2014
How Much to Invest in This Fund to Get ₹ 1 Cr
Small cap funds give high returns, but the risk associated with these funds is very high, which can be minimized by increasing investment horizon.
This fund is best for an investor with a long investment horizon.
Here is the amount you need to invest in HDFC Small Cap Fund through monthly SIP to get a target amount of ₹1 Cr.
|Fund Type||Equity – Small Cap|
|Investment Period||20 years|
|Return per annum (since launch)||24%|
|Monthly SIP amount||₹2424|
Hence, to get to ₹1 crore in 20 years, you need to invest around ₹2,424 per month, assuming an annual return of 24 per year.
**The expected returns taken above are as on 2nd May 2018 for calculating the monthly SIP amount. It is based on these fund’s past performance. The returns in mutual funds vary with time. The above returns are no guarantee of the fund’s future performance.
Past Performance of HDFC Small Cap and History
HDFC Small cap fund is a recent entrant to the list of HDFC Mutual Fund schemes. The fund was started in April 2008 by Morgan Stanley as the Morgan Stanley ACE Fund – a multi-cap fund under regular plan.
In 2014, when HDFC acquired Morgan Stanley’s 8 schemes, this too came in. The ACE fund was repositioned as HDFC Small & Mid Cap fund with a focus on small and mid-cap stocks.
However, HDFC probably realized that this was working against its own HDFC Midcap Opportunities fund and once again in November 2016 renamed it as HDFC Small Cap fund with a focus on Small-cap stocks.
It has a good track record and has given returns of over 23% since its launch.
About HDFC Mutual Fund
HDFC Mutual Fund is one of the largest mutual funds and well-established fund houses in the country with a focus on delivering consistent fund performance across categories since the launch of the first scheme in July 2000.
HDFC Asset Management Company Ltd. is a privately owned investment manager of HDFC Mutual funds. The firm manages equity, fixed income, and balanced mutual funds for its clients. The firm manages equity, fixed income, balanced, and real estate portfolios. It also manages hedge funds for its clients.
HDFC Asset Management Company Ltd was incorporated under the Companies Act, 1956, on December 10, 1999, and was approved to act as an Asset Management Company for the HDFC Mutual Fund by SEBI vide its letter dated July 3, 2000.
The firm is based in Mumbai, Maharashtra. HDFC Asset Management Company Ltd. operates as a subsidiary of Housing Development Finance Corporation Limited, Brand Capital, and Standard Life Investments Limited.
In 2014, HDFC Asset Management Company Limited (HDFC AMC) and HDFC Trustee Company Limited, the asset management company and trustee company of HDFC Mutual Fund respectively, have entered into an agreement with Morgan Stanley Investment Management Private Limited (MS AMC) and the Board of Trustees of Morgan Stanley Mutual Fund, the existing asset management company and trustees of Morgan Stanley Mutual Fund, pursuant to which the schemes of MSMF will be transferred to and form part of HDFC MF, HDFC Trustee will take over the trusteeship of the MSMF Schemes from the MS Trustees and HDFC AMC will take over the rights to manage the MSMF Schemes from MS AMC and become the investment manager of the MSMF Schemes.
HDFC AMC believes in offering products that cater to varied investor needs. Their products across asset classes and risk categories enable investors to invest in line with their investment objectives and risk taking capacity.
Some of the salient features of this fund are:
- The fund was just about ₹927 crores in November 2016, when it last changed its positioning. Today, it stands at ₹2152 crores. More than 2 times in 15 months.
- In terms of risk, HDFC Small Cap Fund is among the funds with the lowest volatility. The standard deviation, which measures the risk, is much lower than the benchmark and top peers in the category.
- Over the past one year, HDFC Small Cap Fund has increased its exposure to cash. The cash levels have increased from about 6% a year ago to nearly 20% in January 2018 and now it maintains at around 15%.
- In 2017, among the top stocks in HDFC Small Cap Fund’s portfolio are Dilip Buildcon, KEC International, Power Mech Projects, LG Balakrishnan & Brothers and Aarti Industries. These stocks moved up by 209%, 150%, 118%, 95% and 51% respectively over the past one year. Many of these stocks are sold in 2018.
You would be aware that small and mid-cap funds are extremely risky.
While these funds have the potential of generating supernormal returns, they can lead to deep losses when the market takes a turn.
HDFC Small Cap fund is managed by a good fund manager.
Its AUM isn’t too big as compared to other top small-cap funds.
The expense ratio is also good.
Returns aren’t spectacular compared to some of its peers, but it’s not bad.
Bear market downside protection wasn’t bad. And it uses a proper benchmark for measuring its performance.
HDFC Small Cap Fund invests in a large number of small and mid-cap stocks, mainly with a motive of long-term growth and capital appreciation. Though the fund has a lower risk than its peers, you need to prudently decide if this fund will be worth your money.
If you opt for this fund, ensure that the fund is in line with your financial goals.
And it is always best to stagger your investments and invest regularly via a Systematic Investment Plan (SIP) while investing in equity oriented mutual funds.
Read More: 10 Tips on Investing in Mutual Funds
To look at some of the best performing funds from every category of mutual funds, check out Groww 30 best mutual funds to invest in 2018.
Disclaimer: the views expressed here are of the author and do not reflect those of Groww.