Fund of Fortnight

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. 

HDFC Small Cap Fund - Direct Plan (Growth)

Reason for recommendation The equity market has become quite choppy in the last few weeks. Before the Union Budget we saw a sharp fall in frontline equity indices which was followed by a vertical rally after it was announced. Now again we are witnessing a fall in the equity market. What is interesting is that the broader market has kept outperforming the frontline market in all this volatility. Small-cap has outperformed both large cap and mid-cap-dedicated indices. Year-till-date as on February 22, the Nifty Small-Cap index has generated return of 11.25 per cent compared to 4.96 per cent and 9.5 per cent generated by Nifty and Nifty Mid-Cap index. One of the reasons for such outperformance is the huge underperformance by small-caps in the last three years. In the given period, Nifty 50 has moved up by 41 per cent while Nifty Small-Cap is down by 3.68 per cent. Hence, making an investment in a small-cap dedicated fund is favourable for investors looking for better risk-reward. HDFC Small-Cap Fund is one that you can select for investment. This is a pure small-cap fund with 77 per cent of the corpus invested in small-cap stocks compared to the category average of 65.67 per cent. The fund, though it faced a rough patch earlier, has come back strongly in the last six months and has generated returns better than its benchmark and its peers.

It is now top quartile performer. The fund is well-diversified with 68 stocks and its top 10 stocks hold only 34.92 per cent of the corpus. The fund has predominantly built a portfolio of smallcap companies which have reasonable growth prospects, sound financial strength, sustainable business models and acceptable valuation that offers potential for capital appreciation. Hence, the fund is suitable for investors with the higher risk-taking ability and an investment horizon of more than five years.

 

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