Small cap mutual funds are known for their potential to deliver higher returns over the long term, but they come with higher risk compared to large-cap and mid-cap funds. Small-cap funds primarily invest in companies that are in their early growth phase, making them an attractive option for investors looking for capital appreciation.
In this blog, we will compare two prominent small cap mutual funds—HDFC Small Cap Fund and Nippon India Small Cap Fund—to help you decide which one fits your investment profile better.
What Are Small Cap Funds?
Small cap Mutual funds invest in equity shares of smaller companies, typically ranked beyond the top 250 companies in terms of market capitalisation. These funds are suitable for investors with a higher risk appetite and a longer investment horizon, as small-cap stocks can be volatile in the short term but have strong growth potential.
Investment Objective of HDFC Small Cap Fund and Nippon India Small Cap Fund
Both HDFC Small Cap Fund and Nippon India Small Cap Fund aim to deliver long-term capital appreciation by investing in small-cap companies.
Let’s take a closer look at the objectives of each fund:
HDFC Small Cap Fund The fund seeks to generate long-term capital appreciation by investing primarily in small-cap companies with high growth potential.
Nippon India Small Cap Fund The fund aims to provide long-term growth by investing predominantly in equity and equity-related securities of small-cap companies.
Comparison of Key Fund Details
Here’s a comparison of the key details of the HDFC Small-Cap Fund and Nippon India Small-Cap Fund:
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| Attributes | HDFC Small Cap Fund | Nippon India Small Cap Fund |
| Fund House | HDFC Mutual Fund | Nippon India Mutual Fund |
| Inception Date | April 3, 2008 | September 16, 2010 |
| Risk Profile | Very High | Very High |
| Fund Manager | Mr. Chirag Setalvad | Mr Samir Rachh |
| AUM (as of Sep 2024) | Rs 33,962.80 Cr | Rs 62,259.55 Cr |
| Benchmark Index | BSE 250 SmallCap Index | Nifty Smallcap 250 TRI |
| Exit Load | 1% Exit Load within 1 year | 1% Exit Load within 1 year |
| Minimum Lumpsum Amount | Rs 100 | Rs 5000 |
| Minimum SIP Amount | Rs 100 | Rs 100 |
Asset Allocation of the Schemes
Both schemes allocate a significant portion of their portfolios to equity, specifically in small-cap companies. Here’s a comparison of their allocation strategies:
| Instruments | HDFC Small-Cap Allocation (% of Total Assets) | Nippon India Small-Cap Fund (% of Total Assets) | Risk Profile |
| Equities and equity related instruments of small cap companies | 65 – 100 | 65 – 100 | Medium to High |
| Equities and equity related instruments of other companies | 0 – 35 | 0 – 35 | Medium to High |
| Debt Securities and money market instruments | 0 – 35 | 0 – 35 | Low to Medium |
| Units issued by REITs and InvITs | 0 – 10 | 0 – 10 | – |
| Non-convertible preference shares | 0 – 10 | – | – |
Comparison of Risk and Returns
Small-cap funds carry high risk due to their exposure to small companies, which are more susceptible to market fluctuations. However, the potential for higher returns makes these funds attractive for investors with a higher risk tolerance.
Let’s compare the performance of these funds over different time periods:
HDFC Small Cap Fund
| Time Period | HDFC Small Cap Fund | BSE 250 SmallCap Index |
| 1-Year Return | 36.24% | 48.94% |
| 3-Year Return | 25.70% | 25.98% |
| 5-Year Return | 30.64% | 32.09% |
Nippon India Small Cap Fund
| Time Period | Nippon India Small Cap Fund | Nifty Smallcap 250 TRI |
| 1-Year Return | 48.18% | 51.15% |
| 3-Year Return | 30.92% | 26.25% |
| 5-Year Return | 37.10% | 32.63% |
Asset Management Company
A brief overview of the AMCs managing these funds:
HDFC Asset Management Company:
HDFC Mutual Fund, backed by India’s largest private bank, is the leading Asset Management Company in the country, managing assets worth ₹6,14,665.43 crore as of June 30, 2024.
Established in 1999 through a partnership between HDFC and ABRDN Investment Management Limited, it was listed on the stock exchange in 2018. With a solid track record of profitability and 28 years of experience, HDFC Mutual Fund offers a variety of savings and investment products across different asset classes, focusing on generating income and growing wealth for its investors.
With millions of active investors and a wide network of distribution partners, including mutual fund distributors and banks, HDFC Mutual Fund consistently shows strong performance.
Nippon India Asset Management
Nippon India Mutual Fund (NIMF), previously known as Reliance Mutual Fund, was founded in June 1995 through a partnership between Reliance Capital and Japan’s Nippon Life Insurance Company. In October 2019, Nippon Life acquired all of Reliance’s shares, resulting in a rebranding. Notably, Nippon India Mutual Funds was the first Asset Management Company (AMC) to be listed on stock exchanges in 2017.
Nippon Life India Asset Management Limited (NAM India) manages NIMF’s assets, with Reliance Capital and Nippon Life owning a combined 75.93% of the company. As of June 30, 2024, NIMF managed assets totaling ₹ 516,267.80 crore, which includes Mutual Funds, alternative investments, pension funds, and offshore funds.
Which Scheme Is Right For You?
Both HDFC Small Cap Fund and Nippon India Small Cap Fund are strong contenders in the small-cap space. However, the right fund for you depends on your risk tolerance and investment objectives:
- HDFC Small Cap Fund may be a better fit for:
- Investors looking for a fund with a balanced portfolio and lower volatility.
- Those who prefer a more conservative small-cap fund with a steady performance.
- Nippon India Small Cap Fund may be more suitable for:
- Investors seeking higher returns and are willing to take on more risk.
- Those who prefer a more aggressive small-cap fund with a focus on high-growth potential.
Conclusion
Both the HDFC Small Cap Fund and Nippon India Small Cap Fund offer investors exposure to high-growth small-cap companies. While HDFC Small Cap Fund is a relatively conservative option in the small-cap space, Nippon India Small Cap Fund caters to investors looking for higher returns at higher risk. Be sure to assess your risk appetite and investment goals before choosing between these two funds.
Suggested Read – Best Small Cap Mutual Fund to invest in 2024
