Should one continue to invest in the Nippon India Small Cap Fund?

Let us go systematically to understand Nippon India Small Cap Fund

Small-Cap:

  • They have a market capitalization of less than Rs 5,000 crore
  • High Growth Potential
  • Highly Volatile and prone to fluctuations during market corrections
  • Less Liquidity (money flow)
Capitalization: Method to differentiate companies listed in the Stock Market

Nippon India Small Cap Fund:

The open-ended fund was initiated on 16th September 2010

The Fund Manager is Samir Rachh

As of Sept 30, 2021, the allocation of the fund in the portfolio is as follows:

Asset Allocation of the Nippon India Small Cap Fund

Top 10 holdings of the Small-Cap Mutual Fund:

Software & Chemicals are given the major weightage in comparison to Finance and Pharma.

Top 10 Holdings of the Nippon India Small Cap Fund

Mutual Fund Performance & Metrics:

  • The Fund has beaten the BSE 250 Small-Cap Index handsomely
  • The return of Nippon India Small-Cap Fund is ~21% v/s ~12% for the BSE 250 Small-Cap Index
Performance of Nippon India Small Cap Fund v/s BSE 250 Small Cap Index
  • The scheme saw some terrible corrections during the last two years (2019 & 2020). Despite this, the fund has managed to recover since its low post-Covid-19 first wave and on the back of earnings post-Covid-19 second wave
  • At present, the portfolio stocks in the Mutual Fund have P/E exceeding 15 (this indicates that is overpriced)
  • The beta for the mutual fund is ~1.0 (bound for medium correction due to earnings downturn, economic downturn, etc.)
Stock Valuation: Price-to-Earnings Ration

Observation:

  1. It is best to stay invested if you are in it
  2. If you are planning to stay afresh, do it via the SIP route only
  3. Do not enter via bulk/one-time buy route
  4. Do not try to time the correction
  5. Do not try to pull out your money/stop SIP if there is a correction as it takes time for small-cap funds to give good to exceptional results
Disciplined Investment: Systematic Investment Plan(SIP)

Hope this helps. If you like the article, feel free to share it with others.

Good Luck!!

Reference:

  1. Difference between Large Cap, Mid Cap & Small Cap
  2. Small-Cap Stocks 101: Why the Risk is Worth the Reward
  3. Nippon India Small Cap Fund
  4. https://www.valueresearchonline.com/funds/11463/nippon-india-small-cap-fund/#fund-portfolio
  5. Price Earnings Ratio
  6. https://utimf.com/articles/complete-guide-on-how-mutual-funds-work/

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