Small cap funds can be rewarding investment options for investors looking for high growth potential over the long term. SBI Small Cap Fund is one of the top performing small cap funds in India managed by the country’s largest bank, State Bank of India.
Benefits of investing
Here are some of the key benefits of investing in this fund:
Diversification: SBI Small Cap Fund invests predominantly in small cap stocks which have a market capitalization of under Rs 500 crores. This provides diversification as the fund invests across sectors and companies compared to investing directly in just a few stocks. Small caps being early-stage companies have potential for high growth.
Growth Potential: Small cap funds focus on emerging companies that have potential to become mid or large caps over time. These young companies in early growth stages have potential to grow exponentially compared to mature large companies. SBI Small Cap Fund aims to identify such high growth companies early. The fund has consistently outperformed its benchmark index over 3-, 5- and 10-year time frames.
Experienced Fund Management: SBI Small Cap Fund is managed by an experienced fund management team led by R. Srinivasan. The fund managers have extensive research capabilities to analyse small cap companies and identify promising ones across market cycles. Their stock selection and investing approach has led to strong returns over long term.
Wealth Creation over Long Term: Small cap funds are best suited for aggressive investors willing to stay invested for long periods. The high risk-high reward nature of small caps can lead to wealth creation over long term as winning stocks multiply in value. SBI Small Cap Fund has proven this by delivering around 24% annualized returns over the last 10 years.
Low Correlation with Large Caps: Small cap stocks have low correlation with large caps. During times when large cap stocks stagnate due to expensive valuations, small caps provide better upside potential. This was seen during the recent bull market when small caps significantly outperformed large caps. Investing in SBI Small Cap Fund provides this benefit of diversification.
Reasonable Costs: SBI Small Cap Fund has an expense ratio of 2.25% which is reasonable for a small cap fund. The fund does not charge any exit load which allows easy liquidity. The Direct plan has even lower expense ratio of 1.25% providing better returns in long run.
SIP Option: Systematic Investment Plan (SIP) in SBI Small Cap Fund allows regular investing over the long term. SIP helps in rupee cost averaging and investing across market cycles. As a volatile category, SIP is an ideal way to invest in small cap funds.
SBI Focused Equity Fund
This multi cap fund invests across market capitalizations with a flexible approach. The fund has the mandate to take higher exposure to small caps, with minimum 65% allocated to equities overall. SBI Focused Equity Fund is also managed by R. Srinivasan and has delivered strong performance over the years owing to its concentrated portfolio of the fund manager’s high conviction ideas. While SBI Small Cap Fund is solely focused on small caps, SBI Focused Equity Fund provides a blend of small, mid, and large cap exposure in its concentrated portfolio.
Conclusion
Overall, SBI Small Cap Fund is one of the top performing funds in the small cap category. For investors comfortable with higher volatility, it provides an avenue for long term wealth creation. The fund can be considered as the aggressive component in one’s portfolio. Consult with a financial advisor at 5paisa.com to understand if SBI Small Cap Fund suits your investment needs and risk appetite.
