What are Small-Cap Funds?
Market capitalization is one of the factors that can dictate your mutual fund investments. You can invest in funds focused on different types of companies; some may invest in large caps, while others may have more exposure to mid cap or small caps.
Small cap funds are perfect for high-risk investors, as these funds invest in companies with less than $250 million in market capitalization. While small cap funds are more unpredictable in the short- to medium-term than large or mid caps, they offer a higher long-term upside return. Small cap companies’ shares can often outperform their large and mid cap counterparts, helping you earn decent returns. However, risks prevail, and therefore, you can consider US stocks to buy together with small cap stocks to hedge your portfolio against risk.
What does the term Direct-Growth mean?
Direct Growth refers to dealing with a plan’s Growth gaining offers through one defined and direct contribution plan. The Nippon Small Cap Fund Direct is among the leading investment schemes to achieve good direct Growth while investing in small cap shares and stocks.
Nippon Small Cap Fund Direct
The Nippon Small Cap Fund – Direct Plan is a mutual fund that invests in smaller, eligible companies worldwide. This investment can effectively outperform the share price inflations in the long term. The fund was established on January 1, 2013.
The Nippon India Small Cap Fund – Direct Plan invests primarily in the Cash Amount, Manufacturing, Basic Resources, Recurring, Defensive, Financial Institutions, Technology, Healthcare, Communications, Real Estate, and Utility service segments. Triparty Repo, NIIT Ltd, Tube Investments of India Ltd, KPIT Technologies Ltd, and Deepak Nitrite Ltd are the fund’s major holdings.
The minimum deposit for a cash payment is INR 5000, whereas the minimum deposit for something like a SIP is INR 100. There is no lock-in duration for the Nippon Small Cap Fund – Direct Plan.
The principal investment goal of the Nippon Small Cap Fund – Direct Plan is to achieve long-term capital growth by investing primarily in small cap equity and equity-related instruments, with a secondary goal of generating continuous profits by investing in debt and money market assets.
From its very beginning, the Nippon Small Cap Fund – Direct Plan has had a compound annual growth rate (CAGR) of 25.96 per cent. The fund’s compound annual growth rate (CAGR) throughout the past one, three, and four to five years has been 40.70 per cent, 30.46 per cent, and 19.60 per cent, respectively.
As per the data collected recently in March 2022, Nippon India Small Cap Fund – Direct Plan has 19,214 crores in assets under management (AUM), which is higher than the small cap market average. The overall cost ratio of the fund was 0.28 per cent in March 2022. According to the most recent recordings in April 2022, the current net asset value (NAV) of Nippon India Small Cap Fund – Direct Plan is over 94.52.
The Nippon India Small Cap Fund – Direct Plan falls into the Very High-risk group, according to SEBI’s (Securities and Exchange Board of India) rules for calculating risk ratings. Trading in the Nippon Small Cap Fund – Direct Plan is recommended for at least three years.
The tax distributions for the Nippon Small Cap Fund – Direct Plan are as follows:
- Earnings will be taxable at the base rate indefinitely. Long term earnings of up to INR 1 lakh are tax-free.
- Long-term investment income (beyond one year) will be taxed at 10%, without any annual inflation advantages.
- Short term investment income (under a year) will be taxable at 15%.
If you are willing to diversify your investment, you can also invest in one of these top US funds (small caps):
- All-Weather Investing
- Dividend Aristocrats
- CANSLIM-esque
- Speciality Chemicals
- Value & Momentum
- Dividend Stars
- Pharma Tracker
- The PE List
- The Great Indian Middle Class
- Rising Rural Demand
- Negen Opportunistic SIP
- Growth & Income
- Quality – Smart Beta
- ICICI Prudential Smart
- Nippon Small Cap Fund – Direct Plan
The Bottom Line
Small cap funds are invested in companies with less market capitalization than the stock market’s leading two hundred fifty companies. Due to their strong returns on investments, small cap funds have become a prominent investing option.
Small cap funds like the Nippon Small Cap Fund – Direct Plan are a good option if you are willing to take a high risk to get the most out of your investments. Such funds are renowned for providing high returns on your investments whenever the marketplace is gloomy. However, remember that such funds can also be severely impacted if the market goes down.