Fund of Fortnight
This is our mutual fund recommendation. Every fortnight , we recommend one open-ended equity diversified fund that has the best potential of returns for the next one year considering its constituents remain the same.
Reason for recommendation
Nippon India Small Cap Fund - Direct Plan (Growth)
The equity market has made a decent recovery from its recent lows. Contrary to the expectation that large-caps would lead from the front, the broader market indices have gained more than frontline indices. From the lows of March 23, 2020, the Sensex has gained by 30 per cent while the small-cap index has gained by 33 per cent. Even during the recent fall, broader market indices have fallen lesser. Going ahead we may continue to see their outperformance as small-cap stocks are trading at a historical discount against large-cap stocks.
In such circumstances, making an investment in a small-cap dedicated fund is favourable for investors looking for riskreward returns. Nippon India Small-Cap Fund is one that you can choose. This is a pure small-cap fund with 73 per cent of the corpus invested in small-cap stocks compared to the category average of 68.53 per cent. The fund has consistently outperformed its benchmark in the last two market cycles. Over the last five years the fund has generated returns twice that of the benchmark and its peers. It has outperformed in both rising as well as falling markets. For example, in the years 2014 and 2017 it generated returns greater than the category. And when the market fell in 2011 and 2018, the fall was lower than the category. The fund adopts a ‘buy and hold’ strategy with no bias for either growth or value investing. It is well-diversified with the top 10 stocks making up for only 27.3 per cent of the corpus. Besides, the portfolio of the fund is well-positioned to reduce future volatility. Chemicals, FMCG and healthcare are the sectors where the fund is overweight. Hence the fund is suitable for investors with higher risk-taking ability and an investment horizon of more than five years.
