Investing in small-cap focused funds is extremely popular as they offer you a chance to invest in the growth story of relatively new companies with small market capitalisation. As per the market regulator the term small cap refers to those companies which rank above 250 in terms of total market capitalisation.
A report by Ventura Securities revealed an interesting insight about the way small cap focused equity schemes allocate funds based on market capitalisation. As much as 50 cent of all small cap focused schemes are exposed to companies which rank between 251-500 in terms of market capitalisation. The exposure of small cap funds to companies ranking between 501-1000 in terms of market capitalisation is 29 per cent.
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The report revealed that the exposure of small cap funds to the companies ranked between 501-1000 was only 2 per cent. LIC’s small cap fund had the highest exposure to stocks which are ranked 500 in terms of market capitalisation. The fund’s allocation towards such stocks was 68 per cent.
SEBI mandates that Small Cap Funds need to allocate at least 65 per cent of their total funds in small cap stocks. Ventura Securities found in its report that small cap schemes invest 8 per cent of their investments in large cap stocks and 11 per cent per cent in mid-cap stocks. DSP and SBI’s small cap funds allocated 95 per cent of their investment towards small cap stocks. On the other hand, Quant’s small cap scheme had the maximum allocation to Large Cap stocks at 26.2 per cent.
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Despite a concentrated investment strategy both the Assets-Under-Management and the returns of small cap schemes have increased in the last few years.
How SmallCap Schemes Have Performed
According to Ventura Securities’ report most of these funds have outperformed the Benchmark Nifty 500 index on a yearly and three-yearly basis in terms of Compounded Annual Growth Rate (CAGR). In three-year Bandhan Mutual Funds’ small cap scheme gave the highest returns of 30 per cent. On the other hand, PGIM India’s small cap scheme gave the lowest returns in three years, gaining 14.3 per cent.
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How Small Cap Schemes Grew In Terms of AuM
In the past five years between November 2019 and November 2024, the assets under management (AUM) of small-cap mutual funds grew nearly six-fold with an average annual growth rate of 48 per cent. As of November 2024, the AuM of all smallcap funds stood at Rs 3,26,391 crore compared to Rs 47,841 crore in November 2019.
