With 38% Returns In 1-year, Should You Invest In This Small Cap Fund?

SBI Small Cap Fund has had a fantastic run in the last 1-year with returns soaring. In fact, the returns from the fund has been close to 38 per cent in the last 1-year in line with the strong momentum in the markets. This makes it among the top performing equity mutual funds.

Long term returns from the fund too solid

Even the long term returns from SBI Small Cap Fund has been solid. The fund has generated a solid returns of 27 per cent on an annualized basis in the last 7 years, while the 10-year returns has been 20.13 per cent on an annualized basis in the last 10 years.

A large part of the returns is because of the way the markets have moved in the last few years. SBI Small Cap Fund has almost 95.4 per cent of the assets under management currently invested and the balance has been held in cash.

The fund has the option of investing through the SIP route where you can look at investing small sums of money every month. The assets under management of SBI Small Cap Fund is currently at Rs 6,628 crores.

 

A strong portfolio

SBI Small Cap Fund has a very strong portfolio including the likes of Elgi Equipments, JK Cement, Blue Star, Sheela Foam, V-Guard Industries, Hawkins, City Union Bank, Hatsun Agro etc. The valuations in some of these stocks is already stretched and expecting too much of an upside in the portfolio would be foolhardy. However, sometimes in the stock markets valuations can remain irrational for a long period of time.

Most of the portfolio is in stocks and the fund should probably stay a little more in cash, given the way the markets have seen a stupendous rally. The net asset value under the fund is currently Rs 75.04, under the growth plan, while under the dividend plan it is Rs 44.33.

 

 

Should you invest in the SBI Small Cap Fund?

Markets have nearly doubled from the low levels seen in March 2020. We all know that to make money in the stock markets or mutual funds we need to invest at low levels and sell at high levels. Investing when the Sensex is a few 100 points away from the 50,000 levels is dangerous and full of risk.

We therefore suggest investors not to invest a lumpsum in equity mutual funds or equities at this stage. Investing through the SIP route is the best possible option. In fact, if you have made money it would not be a bad idea to take some money off the table. At the moment the best investment option would be the Systematic Investment Option, wherein your exposure could be averaged each month. Investors should be very careful to invest large sums at this stage.

 

About the author:

Sunil Fernandes has spent 26 years covering business and finance in India and abroad. Sunil has worked with frontline daily newspapers including Hindustan Times, Deccan Herald and Gulf Times. He has also worked with investment magazines like Dalal Street Investment Journal and Oman Economic Review. His forte remains stocks, commodities, mutual funds and tax planning.