Overview of SBI Small Cap Fund

The SBI Small Cap Fund has demonstrated notable performance over various time horizons, showcasing its potential for long-term capital growth. After being launched on 5^th September 2005, this scheme has generated 21.39% returns. Managed by the top experts in the industry, it has a standing AUM (Asset under Management) at Rs.28375 Crores as of 31.05.24.

Let us dive closer and observe its historical as well as recent performance to determine whether this fund is worth the investment.

Here’s a closer look at its performance:

Long-Term Performance of SBI Small Cap Fund

5-Year Annualized Returns: 25.95%

10-Year Annualized Returns: 25%

When you look at the annualized returns over the past 5 and 10 years, it’s clear this fund has delivered remarkably consistent growth for investors.

Over the last 5 years, it has generated an impressive annualized return of 25.95%. That means if you had invested in this fund 5 years ago, your money would have grown at an average rate of almost 26% per year.

But it gets even better. When you look at the 10-year time frame, the fund has still managed to maintain that high-flying 25% annualized return. That’s an exceptional feat, showcasing the fund’s ability to repeatedly generate market-beating performance, year after year, over the long haul.

The key takeaway here is that this is not a one-hit wonder. The Tata Small Cap Fund has demonstrated its staying power and proven it can deliver strong growth for investors with a longer-term mindset. It’s the kind of fund that can truly help build wealth over time through the power of compounding.

So if you’re an investor looking to add some serious oomph to your portfolio, and you have the stomach for a bit more risk in pursuit of outsized returns, the Tata Small Cap Fund deserves a close look. Its track record of consistent, market-beating performance makes it a compelling long-term investment option.

These figures indicate strong growth over an extended period, making it an attractive option for long-term investors.

Recent Performance of SBI Small Cap Fund

1-Year Return: 39.28%, which is below the category average of 52%.

3-Year Return: 22.96%, slightly below the category average of 25.1%.

Over the last 1 year, the fund has returned 39.28%. That’s a very solid return, no doubt. However, it’s slightly below the average return of 52% for funds in the same small-cap category.

Looking at the 3-year time frame, the fund has generated a 22.96% annualized return. Again, this is a strong performance, but it’s just a tad below the category average of 25.1%.

So while the fund hasn’t quite matched the absolute returns of its small-cap peers in the very recent past, it’s important to keep things in perspective. The long-term track record of this fund remains very impressive, as we discussed earlier.

The key point is that the Tata Small Cap Fund has consistently delivered market-beating results over extended periods. A slight underperformance in the short term doesn’t negate the fund’s proven ability to generate excellent returns for investors over the long haul.

While recent returns have slightly underperformed relative to the category, the long-term track record remains robust.

Risk and Volatility Covered Under the SBI Small Cap Fund

Investing in small-cap stocks inherently comes with higher risk and volatility. The SBI Small Cap Fund is no exception:

Risk Profile: The fund has a high-risk profile, as highlighted by the SEBI riskometer. This classification is due to its significant exposure to small-cap stocks, which tend to experience greater price fluctuations.

Volatility: The fund’s standard deviation is 11.6%, indicating a higher level of volatility compared to the category average. This volatility can lead to more pronounced short-term ups and downs, which can be challenging for risk-averse investors.

Portfolio Composition and Diversification in SBI Small Cap Fund

The fund’s portfolio is diversified across various sectors and stocks, which helps in managing risk:

Equity Allocation: As of April 2024, 92.13% of the fund’s assets were invested in equities, with the remaining 7.87% in cash and cash equivalents.

Top Holdings: The top 5 stocks make up 17.57% of the portfolio, while the top 10 stocks account for 30.51%. This indicates a moderate concentration in the top holdings.

Number of Stocks: The fund holds 57 stocks, which is lower than the category average of 81.85 stocks. A smaller number of holdings can mean higher concentration risk but also allow for more focused stock selection.

Suitability and Taxation for SBI Small Cap Fund

The SBI Small Cap Fund is suitable for specific types of investors:

Investor Profile: Ideal for those with a high-risk appetite and a long-term investment horizon of at least 7 years. The fund’s potential for high returns is accompanied by higher volatility, making it suitable for investors who can withstand market fluctuations.

Investment Mandate: The fund is required to invest at least 65% of its assets in small-cap stocks, ensuring a consistent focus on this segment.

Dividends: Tax-free in the hands of investors.

Capital Gains: Taxed at 10% if gains exceed ₹1 lakh in a financial year, and 15% if redeemed within 1 year.

SBI Small Cap Fund: Detailed Sector Allocation

Understanding the sectors where the fund invests can provide insights into its diversification strategy:

Healthcare: Investments in healthcare provide exposure to a sector that tends to be resilient during economic downturns.

Automobiles: Small-cap stocks in the automobile sector can offer substantial growth as these companies innovate and expand.

Energy: Investments in the energy sector can benefit from the global demand for energy and the shift towards renewable sources.

Metals and Mining: This sector can be highly cyclical, but it also offers opportunities for significant gains during periods of economic growth.

Conclusion

The SBI Small Cap Mutual Fund has the potential to generate impressive returns for your portfolio, particularly if you are willing to accept the associated risks. Investors can start their early SIP to reduce the risk associated with the small-cap category.

Its strong long-term performance, despite occasional short-term volatility, makes it a compelling choice for investors with a high-risk tolerance and a long-term investment horizon.

However, diversification is crucial. It is advisable not to allocate a significant portion of your portfolio to small-cap funds alone. A balanced investment strategy, incorporating various asset classes, can help manage risk and achieve overall financial goals.

Always conduct thorough research and consider consulting with a financial advisor to tailor your investment strategy to your specific needs and risk profile.