Two of the most popular small-cap funds in the market today have restricted inflows. Which means, you cannot invest an unlimited amount of money in them.

Recently, the retail investor has been investing money into small and mid-cap funds owing to their strong performances.

Reliance Small Cap Fund recently limited inflows to the fund. You cannot invest a lump sum in the fund. Only SIP can be started in it.

Reliance Small Cap Stops Fresh Investments and How it Affects You

And through the systematic investment plan (SIP) mode, from May 16.

Henceforth, the fund will be called SBI Small Cap Fund and will have an investment limit of ₹25,000 per month and per PAN card.

The subscription was closed since the fund had a capacity constraint of Rs. 750 crore. After many small-cap funds have been putting restrictions on accepting fresh funds due to rising inflows and limited investment opportunities, SBI Small Cap is the first fund to reopen for fresh investments.

A comparison of both these funds will give a clear picture to the investors for making the choices.

Which Gives Higher Returns: Reliance Small Cap or SBI Small Cap Fund

Reliance small cap fund
Fund Name 1Y 3Y 5Y Category Risk
Reliance Small Cap Fund - Direct - Growth -5.25% 16.41% 32.22% Equity
(Small Cap)
Moderately High
SBI Small Cap Fund
Fund Name 1Y 3Y 5Y Category Risk
SBI Small Cap Fund - Direct - Growth -9.02% 16.93% NA Equity
(Small Cap)
Moderately High

Objectives of Investment

Reliance Small Cap Fund

Generating long-term capital appreciation through predominantly investing in equity and equity related instruments of small cap companies.

SBI Small Cap Fund

It provides opportunities for long-term growth in terms of capital with the liquidity of an open-ended scheme through predominantly investing in a well-diversified number of equity stocks, in small-cap companies.

It is evident that both the funds have a similar objective of investment. The risk is similar too.

You can also read how to reduce losses when invested in small cap funds

Key Details

Particulars Key Details of Reliance Small Cap Fund Key Details of SBI Small Cap Fund
Fund House Reliance Mutual Fund SBI Mutual Fund
Scheme Open-ended Open-ended
Class Equity Equity
Scheme Benchmark S&P BSE Small Cap Index S&P BSE Small Cap Total Return Index
Category Small Cap Small Cap
Inception Date August 2010 July 2009
Face Value (Rs/ Unit) 10.00 10.00
Total Fund Size (in Rs Cr.) 6571.75 873.82
Fund Manager Dhrumil Shah (Since: Feb, 2018)

Samir Rachh (Since: Jan, 2017)

R. Srinivasan (Since: Nov, 2013)
Availability of SIP Yes Yes
Minimum Initial Investment 5000/- 5000/-
Management Fee 1.25 1.25
Expense Ratio 2.00 2.32
Risk High High
Options Growth Growth
CEO Sundeep Sikka Anuradha Rao

Reliance Small Cap Fund: Is this the right small-cap fund for you?

Reliance Small Cap vs SBI Small Cap: Investment Strategy

Both Reliance Smallcap Fund and SBI Small & Mid Cap Fund are open-ended schemes which give flexibility to the investors. The schemes aim for long-term capital appreciation for the investors.

The managers after careful analysis of the macroeconomic factors and the sector of operations of various companies determine the best company to invest in, based on their valuation and investment rationale.

Being a small cap focused fund, both the schemes fall into the category of high risk, high return.

Both the schemes have asset allocation as follows:

Reliance Small Cap Fund

SBI Small Cap Fund

Fund Manager of Reliance Small Cap Fund

Mr. Samir Rachh has graduated in B.Com (H) from V.G.Vaze College, Mumbai. Prior to joining Reliance Mutual Fund, Mr Rachh has worked in Hinduja Finance, Emkay Research and Anvicon Research. He has an professional experience of over 25 years. Few of the funds by him are:

Mr. Dhrumil Shah has graduated in B.com and obtained the degree of Chartered Accountancy. Prior to joining Reliance Mutual Fund, he has worked with Birla Sun Life Insurance as AVP Investments, Equity Fund Management and Research and ASK investment Managers as Portfolio Manager, Equity Fund Management and Research. Few of the funds managed by him are:

  • Reliance Capital Builder Fund IV Series C – since Feb 2018
  • Reliance Capital Builder Fund IV Series D – since Feb 2018

Fund Manager of SBI Small Cap Fund

Srinivasan has completed post-graduation in M.Com and MFM. Prior to joining SBI, he has worked with Principal PNB AMC, Oppenheimer & Co, Indosuez WI Carr, and Motilal Oswal. Few of the funds managed by him are:

Investment Philosophy

Both the funds aim at generating risk-adjusted returns, by investing in small-cap equity and equity-related securities. Small cap stocks are equities, whose market capitalization value stands below the top 250 companies.

The approach of the investment is to adopt prudent risk management measures, like diversification and margin of safety to generate high returns for the investors.

Small cap funds offer twin advantage, which is, it offers high growth prospects and relatively lower valuation. However, a high return has high risk associated with it.

You can also read about the best mutual funds to invest  in 2019

An investor considering to put in money in either of the two funds should consider the following points:

  • The historical performance and return of both the funds as stated above in the returns heading
  • The portfolio section and the weight given by the funds for its investments
  • If an investor is willing to invest a big amount and SBI Small Cap Fund may not prove to be a good option, due to its limitation of 25,000
  • Finally, the risk-taking ability of the investor.

Also, check out some of the best small-cap funds you can consider investing in

Which Fund to Invest in Instead of SBI and Reliance Small Cap?

Reliance Smallcap Fund and SBI Smallcap Fund are not the only good small cap mutual funds available.

Here are some good small-cap mutual funds that are similar to SBI Small Cap Fund and Reliance Small Cap Fund.

1. L&T Emerging Business Fund

Launched in April 2014 this fund is a small cap equity oriented mutual fund with a high risk and high return. The key details of the fund are:

Launch Date April, 2014
Fund Category Equity Oriented – Small Cap
Asset Under Management (AUM) Rs. 4145.21 Cr
Scheme Type Open Ended
Scheme Benchmark S&P BSE Small Cap Total Return Index
Investment Objective Generating long term capital gain appreciation by predominantly investing in a diversified equity funds
Face Value (Rs/Unit) 10.00
Fund Managers Karan Desai (Since: Feb, 2017)

Soumendra Nath Lahiri (Since: Apr, 2014)

Expense Ratio 2.01
Riskometer High
Fund House L &T Mutual Fund

The NAV of L&T Emerging Businesses Fund is Rs. 26.93(as at 21st May 2018) and the historical returns on the fund has been in the following pattern:

L&T Emerging business fund
Fund Name 1Y 3Y 5Y Category Risk
L&T Emerging Businesses Fund - Direct - Growth -8.08% 19.29% NA Equity
(Small Cap)
High

The fund has made its mark in the market and is one of the most attractive fund among the small cap oriented mutual fund.

2. HDFC Small Cap Fund

Launched in January 2013 this fund is a small cap equity oriented fund with high risk and high return (as with most of the typical small-cap funds). The key details of the fund are:

Launch Date January 2013
Fund Category Equity – Small Cap
Asset Under Management (AUM) Rs. 2576.70 crore
Scheme Type Open-ended
Scheme Benchmark NIFTY Small Cap 100 Total Return Index
Investment Objective Provide long-term capital appreciation by predominantly investing in Small Cap companies
Face Value (Rs/Unit) 10.00
Fund Managers Rakesh Vyas ( Since: June, 2014)

Chirag Setalvad (Since: June, 2014)

Expense Ratio 2.36
Riskometer High
Fund House HDFC Mutual Fund

The NAV of HDFC Small Cap Fund is Rs. 45.11(as at 21st My, 2018) and the historical returns of the fund has been in the following pattern:

HDFC Small Cap Fund
Fund Name 1Y 3Y 5Y Category Risk
HDFC Small Cap Fund - Direct - Growth 1.38% 18.72% NA Equity
(Small Cap)
Moderately High

This fund has constantly outperformed its benchmark and managed to keep its risk metrics lower than the benchmark.

Conclusion

Small and mid-cap funds are the type of funds which weigh very high on the risk parameter. The funds can provide great gains but could also lead to great losses in a turn of the market.

An investor must identify his/her goal and objective before investing in any of the stated funds.

Disclaimer: the views expressed here are of the author and do not reflect those of Groww.