Tata Small Cap Fund: Gaining Big through Small-sized Companies

May 16, 2024 / Reading Time: Approx. 10 mins

Listen to Tata Small Cap Fund: Gaining Big through Small-sized Companies

00:00 00:00

Tata Small Cap Fund: Gaining Big through Small-sized Companies

Welcome to  PersonalFN's weekly analysis on diversified equity mutual funds! In this issue, we have analysed Tata Small Cap Fund, highlighting its performance, peer comparison, investment strategy, fundamentals, portfolio, and suitability.

Tata Small Cap Fund is a relatively small-sized scheme in the Small Cap Fund category that has exhibited a noteworthy track record since its inception and has outpaced many of its prominent peers, thereby rewarding investors with superior risk-adjusted returns.

What is the growth of Rs 10,000 invested in Tata Small Cap Fund five years ago?

Past performance is not an indicator of future returns
Data as of May 14, 2024
(Source: ACE MF, data collated by PersonalFN)

Launched in November 2018, Tata Small Cap Fund aims to invest in stocks of companies that are in growth mode and have the potential to make it big in the market. Tata Small Cap Fund looks to identify growth-oriented sound stocks available at reasonable valuations. The fund invests over 90% of its assets in stocks of small-sized companies as compared to the category average of 75%. While this may pose liquidity risk typically associated with stocks of small-sized companies, the fund's focus on diversification in fundamentally sound stocks across various sectors has enabled it to reward investors.

The fund has displayed remarkable growth since its inception, generating returns at a CAGR of about 28% and outpacing the benchmark returns of 22.8%. It has flourished under the supervision of Mr Chandraprakash Padiyar, who has been managing the scheme since its launch. Tata Small Cap Fund efficiently limited the downside risk during the market crash of 2020, while it also stands as a category topper in the ongoing bull phase.

In the last five years, Tata Small Cap Fund has generated returns at a CAGR of 30.6% as against a CAGR of 25.9% in its benchmark Nifty Smallcap 250 - TRI. An investment of Rs 10,000 in Tata Small Cap Fund five years back would have now accelerated to 37,409, while a simultaneous investment in the benchmark would now be valued at Rs 31,145.

Do note that with the small-cap indices trading near all-time highs and the resultant lack of attractive opportunities, Tata Small Cap Fund has suspended fresh investments via the lump sum and switch-in mode with effect from July 2023.

How has Tata Small Cap Fund performed on a rolling return basis?

Scheme Name Corpus (Cr.) 1 Year 2 Year 3 Year 5 Year 7 Year Std Dev Sharpe
Quant Small Cap Fund 20,164 48.42 26.35 49.34 32.51 23.36 21.07 0.42
Nippon India Small Cap Fund 50,423 44.05 26.95 42.63 26.87 23.92 17.00 0.46
HSBC Small Cap Fund 14,619 39.77 23.82 40.52 21.85 19.58 17.07 0.43
HDFC Small Cap Fund 29,685 43.66 24.57 39.19 21.38 21.21 17.04 0.41
Tata Small Cap Fund 6,952 36.21 23.50 39.08 28.47 -- 15.81 0.45
Canara Rob Small Cap Fund 10,086 29.08 20.16 38.07 28.80 -- 16.51 0.41
Franklin India Smaller Cos Fund 12,587 45.41 25.04 37.95 20.74 17.19 16.42 0.44
ICICI Pru Smallcap Fund 7,659 33.47 21.19 37.33 25.08 19.04 15.72 0.42
Edelweiss Small Cap Fund 3,361 37.01 21.82 37.22 30.22 -- 16.09 0.41
Bank of India Small Cap Fund 1,052 37.25 20.31 36.95 32.83 -- 16.88 0.39
Nifty Smallcap 250 - TRI 42.39 18.92 34.49 19.62 15.51 19.59 0.34
The securities quoted are for illustration only and are not recommendatory.
Returns are on a rolling basis and in %. Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised. Risk ratios are calculated over a 3-year period assuming a risk-free rate of 6% p.a.
Data as of May 14, 2024
(Source: ACE MF, data collated by PersonalFN)
Please note, this table only represents the best-performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully before investing. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

Within a relatively shorter time span of little over 5 years, Tata Small Cap Fund has established itself among the top performers in the Small Cap Fund category. Even though the fund has trailed the benchmark in the last one year, it has generated returns nearly in line with the category average.

Over the last 2-year and 3-year period, Tata Small Cap Fund has maintained a lead of about 3 percentage points over the category average and around 4.5 percentage points over the benchmark Nifty Smallcap 250 - TRI on a rolling returns basis. Meanwhile on a 5-year rolling return basis, the fund has outpaced the benchmark by a remarkable margin of 8.8 percentage points and outperformed many of its peers.

Despite relatively higher allocation to small caps, the fund has registered lower volatility compared to most of its peers as well as the benchmark. The fund's risk-adjusted return, as denoted by the Sharpe ratio has been commendable, much ahead of the benchmark and among the highest in the category.

[Read: Small Cap Index Near an All-time High: Should You Rejoice or Worry?]

What is the investment strategy of Tata Small Cap Fund?

Tata Small Cap Fund is mandated to invest a minimum of 65% of its assets in equity and equity-related instruments of small-cap stocks. SEBI defines small-cap stocks as those ranking beyond 250th in terms of market capitalisation. Tata Small Cap Fund follows a 'bottom-up' strategy to assess the valuations and fundamentals of the stock they are considering.

The fund focuses on buying businesses that can grow in terms of profitability and cash flows with strong balance sheets where businesses can surprise the markets over a period of time in terms of delivery of earnings which in turn can lead to rerating of valuations. It follows the 'Growth at reasonable price' approach to pick stocks. Tata Small Cap Funds aims to maintain a well-diversified portfolio of small-cap stock at all times and hold them over the medium to long term to derive its full potential.

What are the top portfolio holdings in Tata Small Cap Fund?

Graph 2 Graph 2
Holding in (%) as of April 30, 2024
(Source: ACE MF, data collated by PersonalFN)

Tata Small Cap Fund holds around 50-60 stocks in its portfolio. As of April 2024, the fund held 51 stocks in its portfolio with the top 10 stocks accounting for about 34% of its assets. The fund held higher allocation in stocks such as Quess Corp, BASF India, IDFC, Elantas Beck India, Kirloskar Pneumatic Company, Gujarat Pipavav Port, and Radico Khaitan. Many of these stocks have been part of the fund's portfolio for over two years now. Tata Small Cap Fund avoids chasing momentum bets and focuses on investing with a long-term view. Accordingly, it has had a low portfolio churn of less than 15% in the last one year.

In the last two years, Tata Small Cap Fund benefitted the most from its prominent holdings in Elantas Beck India, Kirloskar Pneumatic Company, and Gujarat Pipavav Port that collectively contributed about 15% to its absolute gains. The fund also gained from its exposure in Gokaldas Exports, DCB Bank, KSB, Finolex Cables, Radico Khaitan, CIE Automotive India, Honda India Power Products, Redington, and BASF, among others.

Sector-wise, Tata Small Cap Fund's portfolio is skewed towards Engineering, having an allocation of 24.5% in the portfolio. It also holds substantial exposure to Infotech, Consumption, Finance, and Chemicals that form another 34% of its assets. Transportation, Pharma, Construction, Auto Ancillaries, and Textiles are among the other core sectors in the portfolio. Notably, the fund's portfolio is dominated by Sensitive and Defensive sectors, with some allocation to Cyclicals.

What is the liquidity profile of Tata Small Cap Fund?

As per the latest stress test results disclosed by AMCs, Tata Small Cap Fund would take 29 days to liquidate 50% of its portfolio, compared to 35 days reported in the previous month. It would take 15 days to liquidate 25% of its portfolio against 18 days earlier. While this makes the fund less liquid compared to many of its peers, its focus on maintaining a well-diversified portfolio within the small-cap space and preference for reasonably priced stocks can help it deal with stressful market conditions.

[Read: Why Net Inflow into Small Cap Funds Turned Negative in March 2024]

Is Tata Small Cap Fund suitable for my investment goals and risk tolerance?

Tata Small Cap Fund has performed consistently well since its inception in November 2018. The fund stood strong during the bear market of early 2020 and also proved its potential to capitalise on the market rallies in the ongoing bull phase. Tata Small Cap Fund has achieved this by maintaining a well-diversified portfolio of stocks across diverse sectors. With this, the fund has been able to reward investors with remarkable risk-adjusted returns.

While the fund has a higher allocation to stocks in the small-cap segment compared to its peers, making it less liquid, it manages the risk by identifying fundamentally sound stocks available at reasonable valuations. It has also capped the exposure in each of its stock holdings to under 5%, which can help it limit the downside risk.

Tata Small Cap Fund is suitable for aggressive investors looking to benefit from a diversified portfolio of growth-oriented small-cap stocks with a long-term view of at least 5-7 years.

Watch this video to check out the best Small Cap Funds for 2024:


Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Registration granted by SEBI, Membership of BASL and certification from NISM no way guarantee performance of the intermediary or provide any assurance of returns to investors.

We are on Telegram! Join thousands of like-minded investors and our editors right now.

DIVYA GROVER is the co-editor for FundSelect, the flagship research service of PersonalFN. She is also the co-editor of DebtSelect. Divya is an avid reader which helps her in analysing industry trends and producing insightful articles for PersonalFN’s popular newsletter – Daily Wealth letter, read by over 1.5 lakh subscribers.
Divya joined PersonalFN in 2019 and has since then used stringent quantitative and qualitative parameters to analyse funds to provide honest and unbiased research to investors. She endeavours to enable investors to make an informed investment decision and thereby safeguard their wealth.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.



About the Company including business activity

Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989.

QIS was promoted by Mr Ajit Dayal with an objective of providing value-based information/views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.

'PersonalFN' is a service brand of QIS and was started in the year 1999. In 1999, the Company registered the Domain name www.personalfn.com for providing information on mutual funds and personal financial planning, financial markets in general, etc. and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services.

Quantum Information Services Private Limited (QIS) is registered as Investment Adviser under SEBI (Investment Adviser) Regulations, 2013 and having Registration No.: INA000000680. In terms of the second proviso to Regulation 3 (1) of SEBI (Research Analysts) Regulations, 2014 the Company is not required to obtain Certificate of registration from SEBI.

Disciplinary history

There are no outstanding litigations against the Company, its subsidiaries and its Directors.

Terms and condition on which its offer research report

For the terms and condition for research report click here.

Details of associates

  • Group Companies including:

    1. Money Simplified Services Private Limited;

    2. PersonalFN Insurance Services India Private Limited;

    3. Equitymaster Agora Research Private Limited;

    4. Common Sense Living Private Limited;

    5. Quantum Advisors Private Limited;

    6. Quantum Asset Management Company Private Limited;

    7. HelpYourNGO.com India Private Limited;

    8. HelpYourNGO Foundation;

    9. Natural Streets for Performing Arts Foundation;

    10. Primary Real Estate Advisors Private Limited;

    11. HYNGO India Private Limited;

  • Directors of the Company - Suresh Lulla; I V Subramaniam, Murali Ananthan Krishnan and Rafiq Dossani

Disclosure with regard to ownership and material conflicts of interest
  1. ‘subject company’ is a scheme on which a buy/sell/hold view or target price is given/changed in this Research Report;

  2. Neither QIS, it's Associates, Research Analyst or his/her relative have any financial interest in the subject Company;

  3. Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report;

  4. Neither QIS, it's Associates, Research Analyst or his/her relative has any other material conflict of interest at the time of publication of the research report except that QIS (PersonalFN) is, as per SEBI (Mutual Funds) Regulations 1996, an associate / group Company of Quantum Asset Management Company Private Limited and Trustees and Sponsor of Quantum Mutual Fund (QMF) and to that extent there may be conflict of interest while recommending any schemes of QMF. However, any such recommendation or reference made is based on the standard evaluation and selection process, which applies uniformly for all Mutual Fund Schemes. The payment of commission (upfront / annualized & trail), if any, for any Schemes by QMF to QIS (PersonalFN) is also at arm's length and as per prevailing market practices.

Disclosure with regard to receipt of Compensation
  1. Neither QIS nor it's Associates have received any compensation from the subject Company in the past twelve months;

  2. Neither QIS nor it's Associates have managed or co-managed public offering of securities for the subject Company;

  3. Neither QIS nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject Company;

  4. Neither QIS nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.

  5. Neither QIS nor it's Associates have received any compensation or other benefits from the subject Company or third party in connection with the research report

General disclosure
  1. The Research Analyst has not served as an officer, director or employee of the subject Company.

  2. QIS or the Research Analyst has not been engaged in market making activity for the subject Company.

Click here to read PersonalFN's Mutual Fund Rating Methodology

Subject Company means Mutual Fund Schemes

Quantum Information Services Private Limited CIN: U65990MH1989PTC054667 Regd. & Corp. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021

Email:info@personalfn.com Website: www.personalfn.com Tel.: 022 61361200 Fax.: 022 61361222 SEBI-registered Investment Adviser. Registration No. INA000000680, SEBI (Investment Advisers) Regulation, 2013

Investment in securities market are subject to market risks, read all scheme related documents carefully.

PersonalFN' requests your view! Post a comment on "Tata Small Cap Fund: Gaining Big through Small-sized Companies". Click here!

Most Related Articles

ICICI Pru Bluechip Fund: Displaying Track Record of Noteworthy Long-term Returns ICICI Pru Bluechip Fund is a prominent Large Cap Fund with a stellar track record of delivering noteworthy returns to its investors over the long term.

Jul 11, 2024

SBI Long Term Equity Fund: Exhibiting Extraordinary Performance Turnaround SBI Long Term Equity Fund is one of the oldest and most popular schemes in the Tax Saving Mutual Fund (ELSS) category that follows a multi-cap strategy to identify opportunities across the market spectrum.

Jul 04, 2024

ICICI Pru Large & Mid Cap Fund: Excelling with Prudent Risk Management Strategies ICICI Pru Large & Mid Cap Fund is a high conviction-driven Large & Mid Cap Fund that has shown impressive growth in recent years and has outperformed many of its peers.

Jun 27, 2024

Parag Parikh Flexi Cap Fund: Boasting Remarkable Long-term Growth Parag Parikh Flexi Cap Fund is a value-centric Flexi Cap Fund known for its meticulous investment approach having a proven history of delivering impressive long-term wealth for its investors.

Jun 20, 2024

Nippon India Multi Cap Fund: Displaying Superior Growth through High Potential Long-term Bets Nippon India Multi Cap Fund is a Multi Cap Fund that has recorded a strong improvement in its performance by holding an excessively diversified portfolio and staying put on some of its high conviction bets despite disappointment in the short term. It stands strong in terms of risk-adjusted returns.

Jun 13, 2024

Most Popular

Manufacturing Mutual Funds Shine. Are they Worthy of Your Investment Portfolio?Currently contributing around 17% to the GDP, the manufacturing sector is expected to grow to 21% in the next 6-7 years.

May 06, 2024

6 Equity Mutual Funds to Benefit from India’s Defence SectorThe potential to benefit by sensibly taking exposure to defence sector stocks is huge!

Apr 17, 2024

Top 5 Mutual Funds with High Exposure to EV RevolutionThis article will evaluate the top mutual funds to invest in 2024 that have a high allocation to EV stocks.

Feb 06, 2024

Top 5 Mutual Funds That Are Betting on the Manufacturing BoomThis article will evaluate the top mutual funds to invest in 2023 that have a high allocation to Manufacturing stocks.

Sep 01, 2023

HDFC Mutual Fund launches HDFC Manufacturing FundHDFC Mutual Fund launches HDFC Manufacturing Fund

May 08, 2024