Best Small Cap Mutual Fund for 2024 in India

Summary

Over the past year, there has been a significant rally in small-cap mutual funds, attracting substantial inflows. However, concerns are emerging about high valuations and liquidity challenges in small-cap stocks. Fund houses like Tata, Nippon, and SBI have paused new investments in their small-cap funds due to these valuation concerns. The speaker advises caution for fresh investments, highlighting the risk-reward ratio. For diversification and risk management, international funds are recommended as a better option this year. The video also discusses ETF versus fund-of-fund options and their respective benefits and risks.

Takeaways

• 📈 The small-cap segment has experienced a strong rally over the past year, with significant growth in small-cap mutual fund investments compared to other categories.
• 🚧 Some fund houses like Tata, Nippon, and SBI have paused fresh investments in their small-cap funds due to the lack of value and high market levels, showing a cautious approach to maintain their reputation.
• 💡 Investing in small-cap stocks is tricky due to low liquidity and limited free float, which can cause stock prices to soar with small investments, leading to inflated valuations.
• 💼 It is advised to continue existing SIPs in recommended funds, but fresh lump sum investments in small-cap funds are not recommended at the current levels due to an unfavorable risk-reward ratio.
• 🛑 The speaker stresses that while small-cap stocks can grow, their high valuations increase the chances of corrections, making new investments risky at this stage.
• 🔄 Those who have already invested can handle potential market corrections by averaging out their holdings, but fresh investments may not be as favorable.
• 🌍 For diversification and hedging against poor domestic market performance, an international fund remains a better choice, as it offers exposure to different markets and companies.
• ⚠️ The international fund is risky and volatile but offers benefits like diversification and hedging. It also acts similarly to a small-cap fund in terms of volatility.
• 📊 ETF vs Fund of Fund options are available for international funds, with the latter being more convenient for investors without a Demat account, despite slightly higher costs.
• 📢 The speaker concludes by recommending that investors carefully consider their risk tolerance and investment horizon, especially in light of tax implications and the concentrated nature of certain funds.

Q & A

What has been the trend for small cap investments in the past year according to the transcript?

The trend for small cap investments has been remarkable, with a significant rally as depicted in the chart mentioned in the transcript.

What challenges are small cap mutual funds facing as per the discussion?

Small cap mutual funds are facing challenges in managing the rapid influx of investments and deploying the funds productively to generate good returns, especially considering the liquidity constraints and the need for new investment ideas.

Why did Tata Nippon Life PMS close fresh investments in their small cap funds?

Tata Nippon Life PMS closed fresh investments in their small cap funds to protect the interests of existing investors and maintain the fund's performance, as they felt the current valuations did not present value.

What is the speaker's opinion on the risk-reward ratio for fresh investments in small caps currently?

The speaker does not find the risk-reward ratio favorable for fresh investments in small caps, suggesting that the chances of a decline are higher when things become expensive.

What advice does the speaker give regarding SIPs in small cap funds if one has been investing for the past one or two years?

The speaker recommends continuing SIPs in small cap funds without stopping, as there is no need to halt existing investments, especially if they have been profitable.

Why is the speaker not recommending new small cap funds at this level according to the transcript?

The speaker is not recommending new investments in small cap funds at this level due to concerns about the high valuations and the increased risk without a corresponding favorable reward.

What alternative investment does the speaker suggest for diversification and potential hedge against market downturns?

The speaker suggests international funds as an alternative for diversification and as a potential hedge against market downturns, offering exposure to different markets and companies.

What are the benefits of investing in an international fund as per the transcript?

Investing in an international fund offers the benefits of diversification, hedging against country-specific risks, and accessing different market exposures, which can increase the overall portfolio's resilience.

What are the two variants of the Mirae Asset Global Plus Fund discussed in the transcript?

The two variants of the Mirae Asset Global Plus Fund mentioned are the Direct Plan (ITF) and the Fund of Funds variant, both of which offer different investment options and fee structures.

What is the speaker's view on the liquidity and cost-effectiveness of ETFs compared to mutual funds?

The speaker views ETFs as more liquid and potentially more cost-effective than mutual funds when considering the total expenses, although they may require more effort to sell.

What is the speaker's strategy for discussing and recommending funds in the video series?

The speaker plans to discuss and recommend a wide variety of funds, including large cap, multi cap, small cap, and tax-saving ELSS funds, and will address any doubts or comments from the audience in subsequent videos.