NFO Pick – (Mirae Asset Small Cap Fund)

13 Jan 2025 , 01:33 PM

HOW SMALL CAP COMPANIES CHANGED IN LAST 5 YEARS

AMFI has a floating definition of small caps. All listed companies are ranked on market cap, and the top 100 by market cap are classified as large caps. The, companies ranked 101 to 250 are classified as mid-caps. Any company ranked beyond 250 and upto 500 is a small cap. Here are some key changes.

• In 2019, a small cap had a minimum market cap of ₹2,300 Crore and maximum market cap of ₹8,800 Crore. In year 2024, that has changed to ₹11,300 Crore and ₹32,800 Crore.
• Total market cap of all small cap stocks has remained at 34% of the universe, but market cap has grown from ₹105 Trillion to ₹280 Trillion in just 5 years.
• The average promoter holdings of small caps has been steady at 55%; at par with large and mid-caps. Also, the free float of small caps has been robust at 47%.
• In 2019, there were just 172 analysts covering small cap stocks, which is now 224 analysts. In 2024, total of 74 IPOs that hit the primary market were small cap IPOs.
• Upgrades have also risen. Between 2010 and 2015 only 54 companies graduated from small caps to mid-caps. In 2020-2024 period, that figure went up to 86 companies.
• If you look at some of the unique sectors in small caps and their CAGR growth over 5 years; then Telecom 71%, oil & gas 55%, defence 50%, and IT Services 47% stand out.
• Even in the latest FPI sell-off in the last quarter of 2024, it was large caps that saw outflows, while mid-caps and small caps saw FPI inflows.

In short, small caps have not only performed better, but have also shown lower drawdowns in recent times. Above all, they offer a uniquely wide sectoral representation.

 

HOW MIRAE ASSET SMALL CAP FUND WILL ALLOCATE?

The fund will allocate between 65% to 100% of its corpus to small cap equities. The focus will be on sustainable earnings growth, high capital efficiency, low leverage, and solid corporate governance. Also, the fund is aligned to Mirae’s research journey, which has seen small cap universe coverage increase from 24% to 43% in last 5 years. The company will use a totally bottom-up approach to stock picking and will use macros and industry level factors to ratify the final decision.

For investors, the Mirae Asset Small Cap Fund offers a fairly large investment universe, a historical compounding advantage, a good fit for SIP investing based on historical XIRR, exposure to niche market leaders, more undervaluation opportunities, high growth, and a strong element diversification from the traditional large cap oriented portfolios.

HOW SMALL CAP FUNDS PERFORMED IN INDIA?

The Mirae Asset Small Cap Fund is an NFO (classified by AMFI as small cap equity fund) investing predominantly in small cap equities, asper AMFI classification. There are a total of 27 small cap funds in India managing total AUM of ₹3,19,780 Crore.

Scheme Name	Return (%) 1-Year	Return (%) 3-Years	Return (%) 5-Years	Daily AUM (₹ in Crore)
Quant Small Cap Fund	14.68	21.10	43.30	27,040.12
Bank of India Small Cap Fund	22.38	18.61	34.22	1,649.49
Nippon India Small Cap Fund	19.11	22.57	33.00	60,719.28
Canara Robeco Small Cap Fund	15.30	16.58	30.71	11,917.29
Edelweiss Small Cap Fund	18.62	19.59	30.53	4,279.27
Tata Small Cap Fund	23.49	20.90	29.79	9,533.62
Invesco India Smallcap Fund	27.73	22.28	29.61	6,193.12
HSBC Small Cap Fund	19.85	19.69	29.03	16,462.00
LIC MF Small Cap Fund	30.58	20.94	28.51	477.94
Kotak Small Cap Fund	20.26	15.72	28.50	17,241.86

Data Source: AMFI

The table provides performance of top 10 small cap funds on 5-year returns; which syncs with the longer term perspective required in small cap funds. Returns beyond 1 year are CAGR returns.

• On a 1-year returns basis, small Funds generated maximum returns of 40.3% and minimum returns of 10.1%. The average returns over a 1-year period was 19.6%.
• On a 3-year CAGR basis, Small Cap Funds generated maximum returns of 23.9% and minimum returns of 9.5%. The average returns over a 3-year period was 18.6%; impressive amidst the volatility.
• Over a 5-year CAGR period, Small Cap Funds generated maximum returns of 43.3% and minimum returns of 21.4%. The average CAGR returns were 29.1%.

Clearly, the nature of small cap funds is such that they can generate best returns when held for longer period of time, so that the cycles are evened out.

GLANCE AT THE MIRAE ASSET SMALL CAP FUND NFO

Here are key details of the Mirae Asset Small Cap Fund NFO.

• The NFO opened on January 10, 2024 and closes on January 24, 2025. Being an open ended fund, the sale and repurchase at NAV-linked prices start in two weeks.
• On the risk-o-meter, the Mirae Asset Small Cap Fund is classified as a High Risk fund due to its predominant equity exposure and the risk of active management.
• Investment objective of the fund is to generate long term appreciation, by investing in a diversified basket of small cap stocks. It is benchmarked to the Nifty Small Cap 250 TRI.
• There will be no entry load on this fund. Also, the fund has decided not to levy any exit loas, although it advisable to hold a small cap fund for 5-7 years for best results.
• The Mirae Asset Small Cap Fund will offer regular and direct plans. In terms of the options, the fund offers the growth and the IDCW plan to investors.
• Varun Goel will be the fund managers for the Mirae Asset Small Cap Fund, while Siddharth Srivastava will be the dedicated fund manager for overseas investments.
• Minimum investment amount in the NFO will be ₹5,000 and multiples of ₹1. Minimum additional investment ₹1,000, while the minimum SIP amount will be ₹99 only.
• With over 65% in equities, Mirae Asset Small Cap Fund will be classified as an equity fund for tax purposes. Under the new tax rules effective July 23, 2024; short term gains (less than 12 months) will be taxed at 20% plus cess; while long term gains (over 12 months) are taxed at 12.5%, with ₹1.25 lakhs as base exemption per fiscal year.

The Mirae Asset Small Cap Fund offers a good alternative to invest via SIP mode with historical experience pointing to solid XIRR for small cap funds over longer holding periods.