Worried about Reliance Small Cap Fund?

“Are you worried at the negative returns in Reliance Small Cap Fund?”

“Did you start investing in this fund after learning about past 35% p.a. returns?”

“Do you want to stop SIP in Reliance Small Cap and redeem your investments?”

If the answer to any of the above is YES, we suggest you to keep calm and read on. Let us start with a little piece of trivia

“Reliance Small Cap is the largest small-cap mutual fund in India and also the most popular fund at Upwardly!”

How is the performance of Reliance Small Cap Fund?

Let us take a quick look at how Reliance Small Cap has performed against its benchmark, the BSE Smallcap Index. We also compare it to Nifty 50 index, commonly referred to as “market”. We will consider the following 2 metrics in our analysis.

  1. Annual Returns – Percentage gain (or loss) in every calendar year starting 2011
  2. Growth of ₹1 lakh invested on 1st January 2011 over the years

From the graphs below, we see that Reliance Small Cap Fund has outperformed its benchmark in all 9 / 9 years. It has also outperformed Nifty 50 in 7 / 9 years. ₹1 lakh invested in the fund on 1 Jan 2011 would have become ₹3.62 lakh now*. It is almost double of the amount one would have made had he invested in Nifty 50 or the market. By any measure, this is exceptional performance.

Reliance Small Cap - Annual Returns
Reliance Small Cap has beaten its benchmark in all 9/9 years and NIFTY in 7/9 years
Reliance Small Cap - Growth of 1 lakh
₹1 lakh invested in Reliance Small Cap Fund on 1-Jan-2011 would have grown to ₹3.6 lakh*

*as on July 21 2019

What about the last 1.5 years?

Reliance Small Cap Fund has given negative returns in both 2018 and 2019 YTD. Its NAV has gone down 21% from Jan 1 2018. It has also trailed Nifty 50 or market returns by 30% during this period. Troubled? Well, you shouldn’t be. You are most probably overlooking upon the fact that Reliance Small Cap Fund has still beat its benchmark – BSE Small Cap Index by 8% in the last 1.5 years. Hence it still remains a good fund. Just that the small cap category has massively underperformed the Nifty 50 index during this period.

So the Reliance Small Cap fund is doing well but the Small Cap category isn’t? What’s happening?

Small cap companies are those whose market value is lower than that of 250 largest companies in India. Small cap index reflects the increase or decrease in share prices of such companies. Some examples of small cap companies are CEAT Tyres, DCB Bank, Dr Lal Pathlabs, Fortis, PVR and Shoppers Stop. Reliance Small Cap Fund invests in a set of these companies which look promising. These companies might be small today but have a potential to become large tomorrow bringing massive gains to their equity investors. At the same time, these companies are also impacted harder by tough market conditions, competition and regulation. Thus, their share prices show higher fluctuation but give good returns in 7 – 10 years period.

On the other hand, Nifty 50 constitutes of only top 50 companies out of the 3000+ which are listed. When people say that market went up by 1%, they are probably referring to Nifty 50 (or SENSEX 30). These 50 largest companies show relatively less fluctuation in share prices compared to the smaller ones. However, the growth potential in their share prices is typically also lower.

In the last 1.5 years, the market conditions have adversely affected the smaller companies; beating their share prices down. It has thus impacted the performance of Reliance Small Cap and other small cap mutual funds. But this is not to say the small-cap category is worse compared to large-cap. The high growth and returns potential remains intact.

Should I stop my SIP in Reliance Small Cap? Should I sell all my investment in this fund?

NO. We saw above that Reliance Small Cap still remains a good fund consistently beating its benchmark. We also saw that the small cap category is going through a tough phase right now. It might take upto several months for the category to recover. In the long term however, the fund should outperform the market and give high returns. By long term here, we mean a period of not less than 7 years.

As per the latest estimates, India is projected become a $5 trillion GDP economy by 2024-25. Economic reforms, conducive business environment and increasing use of technology will enable companies to grow and scale. Moreover with the fund at lower NAVs now, it is helping you buy cheap and accumulate more units! If you invest through SIP in mutual funds, think of market volatility or fluctuation as a friend and not as a foe. Hence Upwardly recommends you to stay put, continue your SIP in Reliance Small Cap Fund and hold on to your existing investment.

Any other recommendations?

YES, and an important one – DO NOT have Reliance Small Cap as your only SIP. Small cap funds can get you big returns in the long term but you also need the stability of large cap and multi-cap funds. Ever heard of diversification? Or to the famous proverb – “Don’t put all your eggs in one basket”. That is what we are asking you to do. If you are clueless on how to diversify, an Upwardly wealth advisor is just a phone call or email away. You may also consider our popular Upwardly Equity Plan or start SIP in a multicap or large cap fund of your choice.

If you are interested to know more about Reliance Small Cap fund, you could read our earlier fund review and visit the fund page.

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