Professional Documents
Culture Documents
Mutual Funds are regulated by SEBI in India so that the investment decisions so taken are
considered in the favour of investor’s safeguarding.
1. Equity Funds: In this, the investment is done in the shares of many different companies.
The returns or capital gains are positively correlated with the share price of the invested
companies. This is the riskiest and more rewarding type of mutual fund. Investors who
have moderate to high-risk appetite should choose this type of mutual fund after carrying
out the due diligence.
2. Debt Funds: These mutual funds primarily invest in the fixed income sovereign
securities. The returns are predictable in debt fund. When the investor is risk-averse or
the investment duration is short or both, debt funds are recommended.
3. Balanced or Hybrid funds: When the investment is carried out in both equity and debt
funds to reap the benefits of both, the fund is known as a hybrid fund. The ratio in which
the money is allocated to both types of the fund is decided by the fund manager to
mitigate the risk and maximize the returns.
Types of mutual funds based on the size of companies in which the investment is done:
Based on the size of invested companies, mutual funds are categorised as small-cap, mid-cap
and large-cap. The summary and comparison of all three are tabulated below:
For our study, we have chosen the HDFC Small Cap Fund (Direct Plan – Growth).
2. Brief History
This fund was launched in April 2008 as Morgan Stanley A.C.E. fund. In 2014, this scheme was
taken over by HDFC Mutual Fund and rebranded as HDFC Small & Mid-cap fund. As the name
suggests the focus of this fund was on Mid-cap and Small-cap stocks. The scheme, in
November 2016, again repositioned itself having a focus on Small-cap stocks and renamed as
HDFC Small Cap Fund. Like other mutual funds, HDFC small cap fund also offers four types of
investment option such as Direct Plan- Growth, Direct Plan – Dividend, Regular Plan – Growth
and Regular Plan – Dividend.
Mr Chirag Setalvad, since January 2019 managed this fund and in January 2019 Mr Amar
Kalkundrikar has joined Mr Setalvad to manage this fund.
The portfolio constitutes of atleast 65% of investment in small-cap companies diversified across
a large band of sectors.
Market Cap (in Rs. Cr.) Weighted Avg. Market Cap (in Rs. Cr.)
The above bar graphs show that despite being a small-cap fund the investment is considerably
made in large-cap. The weighted avg. market cap is higher than the benchmark index. This is
done to gain some risk mitigation.
Through this bar graph, a contrast between the benchmark index and the mutual fund
investment allocation is represented. This difference in strategy is the prime reason for Alpha
generation.
Comparison of returns with peers:
This fund has the highest AUM among its peer, which shows the trust of investors in this fund.
This fund has fetched very good returns when it comes to 3 years or more investment period in
comparison to its peers. However, the newly launched funds and existing funds in the small-cap
category are giving better returns if we consider the past 2 years of data. The CRISIL rank is
also good for this fund until now.
The high alpha value compared to its category indicates the fund has been able to generate
better returns compared to its peers. However, newer funds such as Axis Small Cap Fund has
fared even better when it comes to past 2 years data on returns, alpha and Sharpe ratio.
5. Conclusion
HDFC small cap fund has fared well since the inception. In the times of market turmoil, its
performance has always been superior if we compare with its peers or benchmark. Besides,
despite being a small-cap fund it performed in comparison with the mid-cap or large-cap fund
when it comes to stability. This fund has better indicators compared to its category and index
such as alpha, Sharpe ratio, standard deviation and Beta.
Our take on this fund is if you are still investing in small-cap funds, you can excuse this scheme.
However, you should hold on to the units that you hold for this fund. Instead of HDFC small cap
fund, you should start investing in Axis small cap fund. This is the best performing fund in the
category of the small-cap fund and is highest rated by CRISIL. The reason is the fund is
comparatively new and is more agile in allocating funds.
It is evident from the summary that Axis small cap fund is superior in all the aspects of risk and
rating as well as when it comes to returns.
If you are currently investing or planning to invest in a small-cap fund, we recommend investing
in Axis Small Cap Fund and hold the units of HDFC Small Cap Fund.
6. Reference
1. www.morningstar.in
2. www.cleartax.in
3. www.moneycontrol.com
4. www.valueresearchonline.com
5. www.hdfcsec.com
6. www.axismf.com
7. www.investopedia.com