Maximize Your Investment Potential with This Small Cap Fund

In this article, you will discover the top five mutual funds that delivered the highest returns in the past year, followed by an in-depth analysis of one of these funds.

Small-cap mutual funds invest primarily in stocks of small companies with relatively low market capitalization. These companies are often young and have high growth potential. While they can offer significant returns over the long term, they are also considered riskier than Large-Cap or Mid-Cap funds due to their size and volatility. Suitable for investors with a high-risk appetite and a long-term investment horizon.

The top five best-performing small-cap mutual funds are Bandhan Small Cap Fund, Mahindra Manulife Small Cap Fund, ITI Small Cap Fund, quant Small Cap Fund, and LIC MF Small Cap Fund.

In this article, we will discuss the Bandhan Small Cap Fund in detail and assess its suitability as an investment option.

Bandhan Small Cap Fund: Bandhan Small Cap Fund is an open-ended equity scheme that primarily invests in stocks of small-cap companies. This fund aims to capitalize on the growth potential of small-sized businesses in India. As with any small-cap fund, Bandhan Small Cap Fund carries a higher degree of risk compared to its large-cap or mid-cap counterparts. Investors should have a long-term investment horizon and a higher risk appetite to consider this fund. The fund's performance has been relatively strong since its inception, outperforming the benchmark index in certain periods.

The size of the fund is nearly Rs 6,617.60 crore. The fund's performance has been exceptional, delivering a remarkable 70.59 per cent return in the past year, significantly outpacing the benchmark BSE 250 SmallCap Total Return Index which garnered 48.60 per cent during the same period. Currently trading at an NAV of Rs 46.94, the fund has showcased its ability to capitalize on the growth potential of small-cap companies.

The Bandhan Small Cap Fund's equity sector allocation reveals a diversified approach to investing, with a significant focus on financial services (21.1%). This sector is influenced by financial institutions like banks, insurance companies, and NBFCs, indicating a belief in the growth prospects of the Indian financial sector. Other sectors include services (11.1%), healthcare (10.5%), construction (8.0%), metals & mining (7.1%), consumer staples (7.1%), energy (6.7%), capital goods (6.3%), and textiles (5.7%). The healthcare sector is gaining prominence due to increasing healthcare expenditure and a growing elderly population, indicating the fund's belief in the long-term growth prospects of the Indian healthcare industry. Construction (8.0%) is a cyclical industry closely tied to economic growth, suggesting the fund's optimism about India's infrastructure development and real estate market.

The fund's portfolio analysis suggests a diversified portfolio with a balanced allocation across various sectors, with an emphasis on financial services and other growth-oriented sectors. However, the performance of the fund will be influenced by overall economic conditions and the performance of specific sectors.

The fund reveals a concentrated exposure to the financial sector, with three companies - Cholamandalam Financial Holdings Ltd. (2.48%), REC Ltd. (2.16%), and Power Finance Corporation Ltd. (1.61%) - accounting for a combined 6.25% of the fund's assets. This indicates a significant weightage to the financial performance of this sector.

Furthermore, the fund has a diversified presence across other key sectors. Textiles (Arvind Ltd. 2.22%), diversified industries (Apar Industries Ltd. 1.97%), automobiles (TVS Holdings Ltd. 1.86%), chemicals (Shaily Engineering Plastics Ltd. 1.76%), services (Rashi Peripherals Ltd. 1.52%), metals & mining (Kirloskar Ferrous Industries Ltd. 1.48%), and financial services (Motilal Oswal Financial Services Ltd. 1.46%) are represented in the top ten holdings. This diversification can help to mitigate risk by reducing exposure to any single sector.

Conclusion

The Bandhan Small Cap Fund is suitable for investors with a high-risk appetite and long-term investment horizon, offering high returns through exposure to small-cap companies. However, it's crucial to understand the inherent risks associated with this asset class before investing.

Disclaimer: The article is for informational purposes only and not an investment advice.