Among small-cap schemes that focus on the quality of companies, Reliance Small Cap Fund Direct has distinguished itself by performing consistently well by sticking to its investment mandate.

It is one of the most famous small-cap funds in the market right now. It is not taking any fresh lump sum (one-time) investments as of this moment.

To know more about this fund, how it fares to existing investor, what is its future and what alternatives do investors have now, read more below.

Reliance Small Cap Fund Direct: 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 31.86% since its launch.

Duration Returns
1 year  23.15%
3 years  25.65%
5 years  38.03%

From above we can easily understand why this fund is in demand and the AUM is so high as compared to its peers.

This fund has beaten its benchmark consistently since its launch. A substantial boost to performance in the last 5 year has earned this fund a very good reputation in the small-cap category.

Over 3 and 5 years, the fund has been ahead of its benchmark by 6 to 13 % points. Compared to the category, it has managed 3 to 5% outperformance. In the last one year, it has even widened its outperformance of the category to 7 % points.

It is quite true to label, consistently featuring a 65 to 7% allocation to small-cap stocks, with most of the residual holdings in mid-caps. The large-cap allocations are usually at 5% or less.

The only shortcoming of this fund is that it hasn’t seen really challenging bear markets like the one in 2008 as it made its debut much later.

Also, the only challenge this fund is facing right now is its burgeoning size of AUM, with assets at over ₹6372 crore as of May 2018.

Reliance Small Cap Fund Direct: A Brief Introduction

Small-cap funds are highly risky and volatile investment instruments but have exponential growth potential and give high returns on investment.

Being a small cap fund, this fund is best suited for investors with a high-risk appetite and who have long investment horizon, say more than 6 years, to get its true reward.

Let us look into various aspects of this fund.

Reliance Small Cap Fund Direct: Key information

Before start investing in any mutual fund scheme, you should look into some basic key features.

Launch Date 01 January 2013
Fund Category Equity – Small Cap
Plan Type Direct
Rating by Groww 5 Star
AUM (Fund Size) ₹6371
Riskometer High
Minimum SIP ₹100
Minimum SWP ₹100
Performance w.r.t its Benchmark Has consistently outperformed its benchmark S&P BSE Small Cap TRI since its launch.
Age of the fund 5 years old
Expense Ratio 1.16%
Exit Load If redeemed between 0 Year to 1 Year; Exit Load is 1%;
Type  Open-ended

Reliance Smallcap Fund: Objective

The primary investment objective of the scheme is to generate long-term capital appreciation by investing predominantly in equity and equity related instruments of small cap companies.

And the secondary objective is to generate consistent returns by investing in debt and money market securities.

However, as with any equity mutual fund, there can be no assurance that the investment objective of the Scheme will be realized and the Scheme does not assure or guarantee any returns.

Reliance Small-Cap: Fund Manager

This fund is managed by:

Mr. Dhrumil Shah – since Feb 2018

Education: Mr. Shah is B.com And C.A

Experience: 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.

Funds Managed:

  1. Reliance Capital Builder Fund IV Series C – since Feb 2018
  2. Reliance Capital Builder Fund IV Series D – since Feb 2018

Mr. Samir Rachh since Jan 2017

Education: Mr. Racch is a B.Com (H) from V.G.Vaze College, Mumbai.

Experience: He has an experience of over 25 years of experience. Prior to joining Reliance Mutual Fund he has worked in Hinduja Finance, Emkay Researchm and Anvicon Research.

Funds Managed:

  1. Reliance Focused Equity Fund – since Sep 2010
  2. Reliance Capital Builder Fund II – Series B – since Jan 2015
  3. Reliance Capital Builder Fund III – Series A – since Jan 2017
  4. Reliance Value Fund – since Apr 2017
  5. Reliance Capital Builder Fund IV Series C – Regular Plan – since Dec 2017

Why is Reliance Small Cap not taking fresh investments?

A mutual fund scheme typically chooses to stop fresh investments when there is a perceived dearth of investment opportunities.

Instead, the fund may choose to sit on the cash till the market opens up for sound investments.

Though maintaining a higher cash position could help the fund outperform when the market is sliding, there is a limit to how much cash a fund can keep (the limit is pre-specified in the fund’s offer document).

Reliance Small Cap Fund Direct stopped taking new subscriptions from the 26th March 2018. A newspaper notice by Reliance Mutual Fund announced this on 23rd March 2018.

But unlike the case of SBI Small & Midcap Fund, it will take any fresh subscriptions in it through SIPs up to ₹1 lakh.

The suspension of fresh investment is in place since March 26, 2018, till further notice.

But as we know every mutual fund house aspires for growing assets under management (AUM), as it means more income through management fees, which are charged as a percentage of every rupee managed.

So what does it mean for investors if a fund house stops incremental flows into any of its schemes?

The move did not have any negative impact on your investments as seen in the performance of Reliance Small Cap Fund Direct scheme after the announcement.

The fund’s stock picks in the small-cap space in the past couple of years have been behind the strong performance.

What to do when mutual funds do not take fresh investments?

If you are a regular investor in such mutual fund schemes, restrictions on investments can easily throw your financial plans off track. Especially in the schemes where lump sum and SIPs have been completely suspended.

But in this case, only lump sum investment has been suspended. You can still invest in Reliance Small Cap Direct Fund via Systematic Investment Plans (SIPs) up to an amount of ₹ 1,00,000 per month.

And SIP is the best mode of investing in any equity oriented mutual funds.

SIP is one of the best ways to invest and tested method of minimizing risk and yet enjoying good returns, by regular, periodic investment, over a long horizon.

Most financial advisers and a large number of investors prefer investing in equity mutual funds through SIPs. The obvious benefit of SIP is that it helps investors to average the rupee cost of a unit and thereby helps the investor to earn higher returns in the long term.

Read More: All About SIP – Systematic Investment Plan

But in case you want to invest a lump sum in the small-cap mutual fund category, it is best to pick alternative schemes that match your risk profile and investment horizon.
Reliance Small Cap Fund Direct is not the only well-performing mutual fund in small-cap category.
Also, this is not the first time a fund house has taken such a step. IDFC Premier Equity Fund has done this several times in the past, as have Reliance Growth Fund and Franklin India Prima Fund.
However, in most cases, the cap on inflows have been temporary.
So, you can expect Reliance Smallcap to open up in future.
But for now, don’t stop investing and pick alternative best small-cap funds in the market or invest in Reliance Small cap fund vis SIPs.

Best Funds to Invest Instead of Reliance Small Cap Fund Direct

Where to invest instead of Reliance Small cap fund? There are some good alternate options in the small-cap category that have shown good performance in recent times.

1. HDFC Small Cap Fund Direct

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 23.74% since its launch.

Here is the key information about HDFC Small Cap Fund – Direct.

Launch Date 01 January 2013
Fund Category Equity – Small Cap
Plan Type Direct
Rating by Groww 5 Star
AUM (Fund Size) ₹2,152
Riskometer High
Minimum SIP ₹500
Minimum SWP ₹500
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
Expense Ratio 0.93%
Exit Load If redeemed between 0 Year to 1 Year; Exit Load is 1%;
Type  Open-ended

Returns per annum over the years from this fund are:

Duration Returns
1 year  31.49%
3 years  24.28%
5 years  26.55%

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.

The investment objective of the scheme is to generate long-term capital growth from an actively managed portfolio of equity and equity-related securities including equity derivatives

2. L&T Emerging Businesses Fund Direct

This is a Small Cap Equity Oriented Mutual Fund launched on May 12, 2014. It is a fund with a high risk and has given a return of 30.76% since its launch.

Here is the key information about L&T Emerging Businesses Fund Direct

Launch Date 12 May 2014
Fund Category Equity – Small Cap
Plan Type Direct
Rating by Groww 5 Star
AUM (Fund Size) ₹4,286
Riskometer High
Minimum SIP ₹500
Minimum SWP ₹500
Performance w.r.t its Benchmark Has consistently outperformed its benchmark S&P BSE Small Cap TRI since its launch.
Age of the fund 4 years old
Expense Ratio 1.76%
Exit Load If redeemed between 0 Year to 1 Year; Exit Load is 1%;
Type  Open-ended

Returns per annum over the years from this fund are:

Duration Returns
1 year  23.72%
3 years  27.07%
5 years  NA

The objective of this fund is to generate long-term capital appreciation from a diversified portfolio of predominantly equity and equity-related securities, including equity derivatives, in the Indian.

This is one of the most attractive small-cap funds in India right now and has been rated high by almost all rating agencies.

Though this fund is new in the small-cap category, it certainly made its mark in the market.

3. Sundaram SMILE Fund – Direct

This is a Small Cap Equity Oriented Mutual Fund launched on 02 January 2013. It is a fund with a high risk and has given a return of 23.67% since its launch.

Here is the key information about Reliance Small Cap Fund

Launch Date 01 January 2013
Fund Category Equity – Small Cap
Plan Type Direct
Rating by Groww 4 Star
AUM (Fund Size) ₹1,481
Riskometer High
Minimum SIP Not Supported
Minimum SWP ₹500
Performance w.r.t its Benchmark Has consistently outperformed its benchmark S&P BSE Small Cap TRI since its launch.
Age of the fund 5 years old
Expense Ratio 1.78%
Exit Load If redeemed bet. 0 Year to 1 Year; Exit Load is 1%;
Type  Open-ended

Returns per annum over the years from this fund are:

Duration Returns
1 year  11.44%
3 years  15.35%
5 years  29.24%

The scheme seeks to achieve capital appreciation by investing predominantly in diversified stocks that are generally termed as small-cap stocks.

Though the performance of this fund is low as compared to its peer in one year time period, this small-cap fund is ideal for long-term investment and have potential to grow higher.

Conclusion

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.

With the news of this fund not taking any fresh inflows, don’t ignore small categories of mutual funds.

In past, many mutual fund schemes have done so for one or another reason.

If you opt for these small-cap funds, 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.

Happy Investing!

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