Why SBI Small and Mid Cap Fund Is Not Taking Fresh Investments and Other 3 Top Options to Invest In

SBI Small and Mid Cap Fund is an Open-ended equity scheme managed by SBI Mutual Fund. It aims to generate returns from a diversified portfolio of equity and equity-related instruments.

The investment objective of the Scheme is to achieve long-term capital appreciation through investments in small and mid-cap companies.

The Scheme's investment process involves selecting stocks based on company fundamentals, valuations, market conditions, and risk appetite. The fund manager believes that it can identify good quality companies at reasonable valuations, which will likely deliver superior returns over time. The fund manager strives to invest in companies with strong fundamentals, sound business models, and growth prospects.

SBI Small Cap Fund Portfolio

Given below are some basic key features that you should look into: 

• Launch Date: 09-Sep-2009
• Fund Category: Equity – Small Cap
• Plan Type: Direct
• Riskometer: High
• Minimum SIP: NA
• Minimum SWP: ₹500
• Benchmark: S&P BSE 250 SmallCap Total Return Index
• Performance w.r.t its Benchmark: Has consistently outperformed its benchmark.
• Expense Ratio: 2.02%
• Exit Load If redeemed between 0 Year to 1 Year; Exit Load is 1%
• Type: Open-ended

Fund Objective

SBI Small and Mid Cap Fund is an open-ended equity scheme managed by SBI Mutual Fund. The fund invests in stocks of small and mid-sized companies listed on the stock exchanges in India. The fund aims to provide capital appreciation and dividend income. 

The scheme seeks to generate income and long-term capital appreciation by investing in a diversified portfolio of predominantly equity and equity-related securities of companies identified as industry leaders. This SBI mutual fund may also invest a certain portion of its corpus in debt and money market securities. 

However, 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.

SBI Small cap Fund: Review

It is an open-ended mutual fund that aims to provide capital appreciation and regular income through investment in equity shares of companies engaged in small-sized businesses.

The fund also aims to provide liquidity to investors through its daily share trading facility. This fund has beaten its benchmark consistently since its launch. A substantial boost in its performance has earned a huge attraction of investors small-cap category.

The fund’s stock picks in the small-cap space in the past couple of years have been behind strong performance. The fund looks for 5 attributes in the stocks it buys: competitive advantage, return on capital, growth, management, and valuation.

While all five may not be available, the fund evaluates every company on relative ratings on these variables.

SBI Small Cap Fund: Growth And 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 19.87% since its launch.

The SBI Small Cap Fund has performed well over the past few years due to its focus on investing in small-cap stocks that have higher growth potential than large-cap stocks do. 

For three and five years, the margin of outperformance against the benchmark has been hefty, at 23.55% to 18.09% returns respectively. 

Why is SBI Small & Midcap Fund Not Taking Fresh Investments? 

SBI Small and Mid Cap Fund are not accepting fresh investments, as it has reached its minimum investment limit. 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 prespecified in the fund’s offer document).

In 2015, SBI AMC announced that from 30 October, it will not take any fresh subscriptions in its Small and Mid-cap mutual fund scheme, either as a lump sum or through SIPs. 

The reason given by the fund house is that the offer document of the scheme states that it will have a capacity constraint of ₹750 crores. It was nearing the target amount in October 2015, which is why it has stopped accepting fresh investments.

Over the FY 2014-15 years, it has seen a 395% surge in the AUM of this fund, following a strong uptick in prices of mid-cap stocks and its own robust performance in the Indian stock market. The fund house’s rationale behind placing this upper limit was to ensure that the fund remains true to its label. Otherwise, it would be straying from its mandate.

Also, the fund house felt that with a large corpus it would be a struggle to find good investment avenues within the narrow universe of small and mid-cap stocks in Indian markets.

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. In such cases, it is best to pick alternative schemes that match your risk profile and investment horizon. 

SBI Small & Midcap Fund – Direct-Growth is not the only well-performing mutual fund in the 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 has been temporary. So, you can expect SBI Small and Midcap Fund to open up in the future. But for now, don’t stop investing and pick alternative best small-cap funds in the market 

Best Funds to Invest Instead of SBI Small and Mid Fund

1) Axis Small Cap Fund Regular-Growth

Axis Small Cap Fund Regular-Growth is an open-ended Small Cap Equity scheme. It was started in October 2001 and is managed by Axis Mutual Fund. It primarily invests in around 4.36% of giant & large-cap companies, 51.72% in mid-cap, and 43.92% in small-cap companies.

2) Quant Small Cap Fund-Growth

Quant Small Cap Fund-Growth is an Open-ended Small Cap Equity scheme, which was launched on 24-Nov-1996. It aims to provide risk-adjusted returns by investing in the best-performing small-cap stocks from across India.

The fund manager invests in stocks that are part of the BSE Small Cap Index and Nifty Next 50 index. The fund manager also employs a stock screening process to identify stocks with strong fundamentals that are likely to outperform their peers and an active share trading strategy to exploit mispricings in the stock market.

3) HDFC Small Cap Fund Direct-Growth

HDFC Small Cap Fund Direct (Growth) is an Open-ended Small Cap Equity scheme. The fund invests in large and mid-cap stocks along with a few small and micro-cap stocks. The investment philosophy of the fund is to invest in companies that can grow large enough to be eligible for inclusion in the Large & Midcap basket, but which are below their full potential as yet.

You may also be interested to know more about the Top Performing Small Cap Mutual Funds to Invest

Wrapping Up

If you are planning to invest in SBI Small and Mid Cap Fund, you need to know that it is not accepting any new investments as of now. The reason for this is that the fund has reached its minimum investment limit or AUM.

Remember that, as per the regulations of the Securities and Exchange Board of India (SEBI), mutual funds are required to disclose their current status on whether they are taking fresh investments or not.

If a mutual fund company does not accept fresh investments from investors, then it must disclose this information on its website as well as through advertisements in newspapers and magazines.

If you are looking to make fresh investments in mutual funds, then you can check the out alternate options we have mentioned above.

Disclaimer: The views expressed in this post are that of the author and not those of Groww.

To read the RA disclaimer, please click here

Research Analyst - Bavadharini KS