Is the SBI Small-cap Fund a Good Fit for a Monthly SIP Investment?
When it comes to making long-term investments, choosing the right fund can make all the difference. The SBI Small-cap Fund has been a standout performer, offering impressive returns and outstanding downside protection in comparison to its benchmarks and peers. But is it the best fit for a monthly Systematic Investment Plan (SIP) investment of Rs 2000 over a period of 7 years? Let's delve into the details.
Outstanding Performance
Over the past 10 years, the SBI Small-cap Fund has delivered an annualized return of 25%, almost double the amount compared to its benchmark, NIFTY 50. This stellar performance has not only caught the eye of many investors but also made it the best-performing small-cap fund and diversified equity fund across the board.
Exceptional Downside Protection
One of the key reasons for SBI Small-cap Fund's outperformance is its outstanding downside protection. Since its inception in 2009, NIFTY 50 has delivered negative returns in 16 quarters. During these quarters, the SBI Small-cap Fund has fallen less often, in 10 quarters. This demonstrates its ability to cushion against market downturns.
The Secret of Success
Behind the success of the SBI Small-cap Fund lies the expertise of its fund manager, R Srinivasan. He is skilled in identifying small-cap stocks with significant growth potential and holding them for the long term. The fund's low annual turnover ratio of 17.70 further supports this strategy, as it indicates a focus on value and long-term investment.
Bottom-up Approach and Diversification
Another factor contributing to the fund's success is its bottom-up approach. This involves selecting individual stocks based on intrinsic value rather than relying on sectoral allocations. This results in a different sectoral allocation compared to its peers, giving the fund an edge in identifying and capitalizing on undervalued opportunities.
Implications for Investors
With such impressive performance, the SBI Small-cap Fund is certainly a strong candidate for investors looking to grow their wealth over the long term. However, it's important to remember that no single fund should dominate your entire portfolio. According to conventional wisdom, the small-cap allocation in an equity portfolio should be no more than 20-25%. Carefully consider your overall investment strategy and diversification before making a decision.
Alternatives
While the SBI Small-cap Fund is a standout, there are other strong contenders to consider for your SIP investment. For instance, the HDFC Small Cap Fund and the Franklin India Smaller Companies Fund also offer reliable performance. Each of these funds has its unique strengths and, like the SBI Small-cap Fund, offers good downside protection and above-average returns.
Market Considerations
Despite the strong performance of small-cap funds, it's crucial to consider the current market volatility. Given the upcoming global market sell-off before December, and the anticipated effects of the upcoming 2019 elections, it might be wise to diversify your investment by considering balanced funds that offer a mix of equity and debt.
For those looking to keep a balanced approach, balanced funds can provide a stable income and risk management, making them a compelling alternative to purely small-cap funds. These funds are designed to protect your capital during market downturns while still benefiting from potential growth in equities.
Conclusion
Choosing the right SIP investment for a period of 7 years is a significant decision, and the SBI Small-cap Fund is certainly one of the top performers. However, it's important to consider your overall investment strategy and the broader market conditions. By diversifying across different types of funds and considering the current market volatility, you can build a more robust and resilient portfolio.
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