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MF Review: HDFC Small Cap Fund a good performer, can invest via SIP for long term

Investors wishing to invest in HDFC Small-Cap fund should opt for SIP route with a long-term horizon, preferably over 5 years.

October 03, 2018 / 11:06 AM IST

HDFC Small Cap Fund scheme was launched on April 3, 2008. The AUM of the scheme as on August 31, 2018 was Rs 5,111 crore. The fund is an open-ended equity scheme predominantly investing in small-cap stocks. 

Fund Manager

Chirag Setalvad is a senior fund manager at HDFC Mutual Fund. He joined HDFC Asset Management in March 2007. Chirag has an overall experience of 21 years.

Investment Strategy

The HDFC smallcap fund can provide you with long-term capital appreciation or income by investing predominantly in small-cap companies or emerging companies. Since 2013-14, the scheme has been following mid and small-cap strategy, while prior to this, it followed a multi-cap strategy.


Small-cap companies are those companies whose market-cap is equal to or lower than that of the stock with the largest market cap in the CNX Free Float Small cap 100 Total Return Index (TRI).

Mid-cap companies are those companies that have a market-cap equal to or lower than the stocks with the largest market cap in the CNX Free Float Midcap 100 Total Return Index (TRI).

Over the last three to five years, HDFC Small Cap Fund has outperformed its benchmark — the Nifty Free Float Small Cap 100 index. Also, the fund has been able to maintain the risk exposure even going through volatile conditions and if we see it from inception it has regained the losses and started giving good returns in past 5 years.

Portfolio composition in present scenario

The fund has a minimum exposure of 50% to small-cap stocks across all emerging companies. It has given good returns when compared to its benchmark’s returns last year.

The benchmark gave a negative return of (-)0.07% while the fund gave around 23.29 percent return. Not only this, if you compare the fund with respect to its benchmark since inception, it shows a positive deviation in returns (benchmark stood at 8.66% while fund stood at 15.83%).

This shows good stock picks and change in allocation done by Setalvad from time-to-time which actually outperformed the fund even going through the worst phase of market conditions. For instance, Setalvad's composition of holding in sectors varies in a wide range where he has just allocated 7% to finance, benchmark allocated around 20% in the financial sector. Currently, its top three holdings are engineering with 12.35%, Technology with 11.76% and Chemical 11.23%.

The fund is allocating 65%-100% to equity and equity-related instruments including other small-cap companies at around 0%-35%. In units issued by REITs and InvITs, it has exposure of up to 10%. In non-convertible preference shares, the exposure is as low as 10%. Apart from this, debt securities have been given an exposure of up to 35% (including securitised medium debt) and money market instrument.

Top Sectors as on – August 2018


Top 10 companies as on August 31, 2018


Performance of HDFC Small Cap Fund


*Returns as on 31st August, 2018

Note: 1. Past performance may or may not be sustained in future.

Benchmark:  NIFTY Smallcap 100 (Total Returns Index)

Performance of other schemes managed by Fund Manager


*Returns as on 31st August, 2018

Note: Past performance may or may not be sustained in future.                          Benchmark: - S&P BSE SENSEX for HDFC Long Term Advantage Fund  - Nifty Midcap 100 for HDFC Opportunities MidCap Fund         

Peer comparison


Growth in invested amount

The current value of an investment of Rs 10,000 in the scheme Vs Benchmark


*Performance as on August 31st, 2018

Should you invest now?

Small-cap category has witnessed a significant correction over the past few months. In fact, many of its constituents have very attractive valuations. However, as the broader market is still very richly valued, any major correction in the major indices may pull down small cap category with them. Moreover, small-cap category is a vast category covering all corporate, except the top 250 companies. Hence, this category provides much higher scope for stock-picking and value buying.

Manish Kothari – Director, Head of Mutual Funds, told Moneycontrol that those wishing to invest in HDFC Small-Cap fund should opt for SIP route with a long-term horizon, preferably over 5 years. “SIPs will average the investment cost during a market correction and help derive greater upside potential over the long term,” he said.

Key takeaways from financial expert

HDFC Small-cap Fund has managed the recent correction in the small cap category well. Small cap funds as a category posted an average return of around 1.5% over the same period. The fund has also beaten its benchmark index and peer funds by a long margin over the last-3 year period.

“Though the fund managed to hover around the category averages in earlier years, its performance over the last 3 years suggests that it can outperform its peer funds in both exploiting the upside potential as well containing the downside risk in the small cap category,” Kothari said.
Navneet Dubey
first published: Oct 1, 2018 10:52 am

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