Widely read:
AI-generated image
Why do most small-cap funds have significant allocation to mid caps in their portfolio? — Anonymous
Contrary to belief, small-cap funds don't invest all their money in small-cap companies. That's because market regulator SEBI has allowed them some flexibility. These funds are required to invest at least 65 per cent of their assets in small caps. It's up to the fund manager to decide whether to allocate the remaining 35 per cent to mid caps and large caps, depending on market conditions and investment opportunities.
Since small caps tend to be more volatile and carry liquidity concerns, spreading the exposure to other market caps mitigates these risks.
Where do small-cap funds invest?
-
28 active funds, on average, allocate 82 per cent of their assets to small caps and 13 per cent to mid caps (as of August 31, 2024).
-
Only six of them have over 15 per cent exposure to mid caps. Their performance has been a mixed bag: three funds outperformed the Nifty Smallcap 250 TRI over the past three years, while the other three trailed the benchmark.
- Only four funds— JM Small Cap , Tata Small Cap , SBI Small Cap and DSP Small Cap — have over 90 per cent small cap exposure.
Small-cap schemes with highest allocation to mid caps
| Fund name | Mid cap allocation (%) | 3Y trailing returns(Category average = 26%) |
|---|---|---|
| Edelweiss Small Cap Fund | 30.03 | 27.61 |
| Invesco India Small Cap Fund | 29.21 | 29.31 |
| HSBC Small Cap Fund | 22.07 | 29.17 |
| ITI Small Cap Fund | 21.92 | 25.95 |
| Kotak Small Cap Fund | 17.51 | 23.30 |
| Axis Small Cap Fund | 17.15 | 25.03 |
| Source: Value Research. Allocation data as of August 31, 2024, for direct plans. Returns as of October 1, 2024. Categorisation as per SEBI market capitalisation ranking | ||
Also read: The hidden dangers in your soaring mid- and small-cap funds
This article was originally published on October 03, 2024.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
