Choosing between two small-cap funds

By Morningstar |  07-08-19 | 
 

I have been investing in these funds since 4 years through SIP. These are my investments till date.

  • ICICI Bluechip – 1,90,000
  • ICICI Discovery – 60,000
  • HDFC Midcap – 35,000
  • HDFC Smallcap – 30,000
  • ABSL Equity – 35,000
  • Mirae Emerging Bluechip – 30,000
  • Franklin Equity – 45,000
  • Franklin Smallcap – 30,000

- Kaushik

Your allocation reflects a fairly large proportion in the large-cap space. ICICI Bluechip is a large-cap fund. ICICI Pru Discovery predominantly carries a large cap exposure and so does Aditya BSL Equity Fund and Franklin Equity. If this is the intended asset allocation that you wish to hold as part of your portfolio, based on your risk appetite, you can continue your current allocation across funds. The funds that you have opted to invest in are amongst the best in their respective categories and we have a positive analyst rating on all of them. We would also urge you to invest some portion of your assets in debt funds with a view to diversify your investments.

If I want to park my money for 8 months - Rs 20 lakhs, is IDFC Gov. Sec. Constant Maturity a good fund?

- Chandrashekar

Your investment horizon of 8 months is too short a time frame to invest in a constant maturity government security fund.

Given the downtrend in the interest rate scenario, these funds have been able to deliver relatively better returns for sometime now. However, they can also be exposed to above average volatility in the short-term.

For your investment horizon, a mix of Ultrashort/low-duration and short-term bond funds would be more apt, may be in the ratio of 70:30.

You can look here at our analyst ratings on the funds from Ultrashort and short-term category. This will give you an idea on the funds covered under our analyst rating and help you take informed investment decision.

Between SBI Small Cap and Axis Small Cap, which should we buy? Horizon of 5-7 years.

- Tajinder

Both the funds that you have chosen are well managed strategies. It is important to note both the funds have done a wonderful job of capturing market upsides and downturns.

SBI Small Cap Fund has a good long-term track record as compared to Axis Small Cap. Also, we have a high level of conviction in the fund manager R Srinivasan, who also heads the Equity desk. With his capabilities he is being able to run this fund efficiently.

Axis Small Cap delivered superior risk adjusted returns over the last one year under the Anupam Tiwari’s leadership. Tiwari has been managing this fund since 2016 and prior to this he was managing mainly large cap and tax saver funds at Principal Mutual Fund. Hence, you must see how well he is being able to manage small cap strategies over the long run.

We also want to highlight that Small-Cap & Mid-Cap funds should be invested with at least 7-10 year investment horizon. Small-cap stocks are excellent wealth creators over the long term, but also can be quite volatile in the short term. 2018 is a classic case in point, whereby small cap stocks have fallen quite significantly and so have small cap funds. We would recommend consulting with an Investment Advisor who will guide you through understanding your risk return objectives and help drawing up a suitable asset allocation for your portfolio.

Is it right to continue a SIP in HDFC Mid Cap Opportunities?

- AK

HDFC Mid Cap Opportunities has remained an above average performer on a historical basis. Its mandate underwent a slight change post the recategorization as the manager exited a few large cap stocks and bought into more of mid and small cap names. We think that the change should not impact the fund’s ability to outperform its benchmark as well as its peers. The fund is led by a skilled manager and backed by a solid investment process. Chirag Setalvad has been managing this fund since inception and we think that it’s amongst the best funds in the category. We currently have an analyst rating of ‘Gold’ on this fund. Basis these points, we don’t see a reason why you should stop your SIP. Having said that, please ensure that this fund meets your risk and returns expectations and is appropriate from an asset allocation perspective in your portfolio.

My portfolio consists of fund SIP amount UTI Equity (Rs 1,000), L&T Large India Cap Fund (Rs 1,000), Mirae Asset India Large Cap (Rs 1,000), Axis Long Term Equity (Rs 1,000), IDBI Nifty Index Fund (Rs 1,000), Reliance Small Cap (Rs 1,000). My goal is to accumulate Rs 50 lakh after 20 years.

- Anand Krishnan

The SIP you are doing currently would be able to help you generate the corpus you are targeting in the next 20 years.

The funds selected by you are good funds and you can continue investing in them. However, you can consider diversifying your portfolio a bit more.

Currently you have roughly 71% of assets in large cap segment. But given the time horizon that you have in hand, you can increase exposure to mid and small cap segment. If you have the requisite risk appetite, then you can consider reducing large cap exposure to 60-65% and increasing mid and small cap exposure to 35-40%.  Though mid and small cap funds could be volatile in the short-term, over the long term they are good multipliers of wealth.

You have three large cap funds in your portfolio including an index fund. You can consider reducing the allocation to index fund and instead add a mid-cap fund to your portfolio. From diversification perspective, Index fund can be a part of your portfolio, but the allocation can be around 5%. Going ahead you can also diversify the portfolio at category level specifically in case of mid and small cap categories to reduce manager or fund specific risk.

Here are our views on funds from different categories.

I am a calculated risk taker. This is my portfolio: ABSL Tax Relief 96, Axis Long Term Equity, Franklin Prima, Parag Parikh Long Term Equity, Axis Bluechip and Mirae Asset Emerging Bluechip.

- Rahul Rooney

You do have a good set of funds in your portfolio. The funds you have named are fairly well managed strategies and in addition it’s a good mix of funds from different categories. However, we would recommend consulting with an Investment Advisor who will guide you through understanding your risk return objectives and help drawing up a suitable asset allocation for your portfolio.

See our views on some of the funds that you mentioned.

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