Among small-cap schemes that focus on the quality of companies, SBI Small & Midcap 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 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.

SBI Small & Midcap 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.

mutual fund direct plan cta

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.

UPDATE (7th may 2018)

If you were eagerly waiting for this fund to open fresh investment, then its your lucky day today.

A good news for you from SBI AMC. SBI small and mid cap fund will reopen for fresh subscriptions through the systematic investment plan (SIP) mode from May 16, 2018. But under the fund name SBI Small cap Fund and will have an investment cap of ₹25,000 per month and per PAN card. 

It is the first mutual fund in small cap category, to reopen for fresh subscriptions after many small cap funds had put restrictions on inflows because of rising inflows, higher valuations and lower investment opportunities.

You would be well aware of the fact that small cap funds are extremely risky. While these funds have the potential of generating super normal returns, they can lead to deep losses when the market takes a turn. So, SIP is the best mode of investing in any small cap 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.

Read More: All About SIP – Systematic Investment Plan

But in case you still want to invest a lump sum in the small cap mutual fund category,  you can choose any of these alternatives. This two are the best funds in small cap category for 2018.

  1. HDFC Small Cap Fund – Direct
  2. L&T Emerging Businesses Fund – Direct

These funds are even better ratings than SBI small and mid cap funds, and have stellar performance track records over the years.

 

Let us look into various aspects of this fund.

SBI Small and Midcap Fund Growth 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 4 Star
AUM (Fund Size) ₹943
Riskometer High
Minimum SIP NA
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 1.25%
Exit Load If redeemed between 0 Year to 1 Year; Exit Load is 1%;
Type  Open-ended

SBI Small & Mid-cap Direct Fund Objective

The objective of SBI Small n Midcap Fund is as follows: 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 & Midcap Fund 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 34.08% since its launch.

Duration Returns
1 year  36.58%
3 years  26.23%
5 years  37.48%

From above we can easily understand why this fund is in demand.

This fund has beaten its benchmark consistently since its launch. A substantial boost to performance in the last one year has earned a huge attraction of investors small-cap category.

For three and five years, the margin of outperformance against the benchmark has been hefty, at 11 to 16% points. It has also outpaced the category by 8% points.

The fund’s stock picks in the small-cap space in the past couple of years have been behind the 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 and Midcap Fund Manager

This fund is managed by R. Srinivasan since Nov 2013

Education: Mr. Srinivasan is M.Com and MFM.

Experience: Prior to joining SBI he has worked with Principal PNB AMC, Oppenheimer & Co, Indosuez WI Carr and Motilal Oswal.

Funds Managed: He has been managing other well-performing funds too

  1. SBI Emerging Businesses Fund – since May 2009
  2. SBI Magnum Equity Fund – since May 2009
  3. SBI Magnum Global Fund – since May 2009
  4. SBI Contra Fund – since Jun 2011
  5. SBI Magnum Balanced Fund – since Jan 2012

Fund manager of SBI Small & Midcap Fund Growth is extremely talented and is one of the main reason for making this small-cap scheme so attractive in the market.

Why is SBI Small & Midcap Fund 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).

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 crore. It was nearing the target amount in October 2015, that is why it has stopped accepting fresh investments.

Over the FY 2014-15 year, it has seen a 395% surge in AUM of this fund, following a strong uptick in prices of mid-cap stocks and its own robust performance in 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.

But 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 SBI Small & Midcap Fund 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.

The fund is among the few in this space to remain at an easy to manage size at ₹943 crore as of April 2018.

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 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 SBI Small and Midcap Fund to open up in 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

Where to invest instead of SBI Small and mid 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 are 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. Reliance Small Cap Fund – Direct

This is a Small Cap Equity Oriented Mutual Fund launched on 01 January 2013. It is a fund with a high risk and has given a return of 31.86% since its launch.

This small-cap mutual fund has also recently limited investments.

Read More: Reliance Small Cap Stops Fresh Investments and How it Affects You.

Under new guidlines, investment is possible in Reliance Small-cap Fund only via SIP and there is a maximum investment limit of Rs 1 lakh per month. Lump sum investment is not available at the moment.

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 5 Star
AUM (Fund Size) ₹6,371
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 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  23.15%
3 years  25.65%
5 years 38.03%

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.

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.

SBI Small and Mid 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.

With the news of this fund not taking any fresh inflows, don’t ignore small and mid-cap mutual funds of other mutual funds.

You can expect SBI Small & Midcap Fund – Direct to open up in future.

But for now, don’t stop investing and pick alternative best small-cap funds.

There are more good quality small-cap mutual funds available in the market. You can invest in those funds, mentioned above.

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.