SBI Small Cap Fund: Identifying High Potential Small-sized Companies

Jun 16, 2022

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After a sharp run-up between 2020 and 2021, Small-cap mutual funds are down by around 12% on an average so far in the current calendar year due to sharp volatility in the equity market. However, Small-cap Funds have the potential to outperform its mid-cap and large-cap peers in the long run if the investors are patient enough.

It is important to note that there are various risks associated with small-cap stocks, and they can be highly volatile. Therefore, if you are looking to invest in Small Cap Funds, ensure that you select schemes that focus on picking quality stocks that have high growth potential.

SBI Small Cap Fund is one of the most popular schemes in the Small Cap Fund category that has generated significant alpha for its investors in the long run.

Graph 1: Growth of Rs 10,000 if invested in SBI Small Cap Fund 5 years ago

Launched in September 2009, SBI Small Cap Fund is the third-largest scheme in the Small-cap fund category. The fund has well established itself in the Small-cap Fund category due to its superior long-term track record, wherein it stands among the top quartile performers. SBI Small Cap Fund’s superior performance has attracted investors’ attention. Consequently, its corpus size has more than tripled in the last two years. The fund efficiently limited the downside risk during the mid and small-cap crash of 2018 as well as the market crash of early 2020. However, the fund could not fully participate the recent bull phase. Nonetheless, over the last 5-year period, SBI Small Cap Fund has been the top performer in its category and has rewarded investors with a CAGR of around 18.5%, as against the 7.4% CAGR delivered by its benchmark S&P BSE 250 Small-Cap – TRI, thus generating an alpha of around 11% CAGR for its investors. An investment of Rs 10,000 in SBI Small Cap Fund five years back would have more than doubled to Rs 23,407. While the fund is prone to high risk, it still has the ability to compensate long-term investors with superior returns and reward them for their patience.

Graph 1
Past performance is not an indicator of future returns
Data as on June 15, 2022
(Source: ACE MF)

Table: SBI Small Cap Fund's performance vis-á-vis category peers

Scheme Name Corpus (Cr.) 1 Year 2 Year 3 Year 5 Year 7 Year Std Dev Sharpe
Quant Small Cap Fund 1,754 6.35 75.46 38.27 19.43 16.23 33.77 0.30
Canara Rob Small Cap Fund 2,560 20.25 59.91 32.22 -- -- 26.53 0.30
BOI AXA Small Cap Fund 291 5.68 52.82 32.10 -- -- 25.35 0.31
Kotak Small Cap Fund 7,192 8.51 57.67 29.39 16.67 18.64 27.38 0.28
Edelweiss Small Cap Fund 1,116 7.28 50.99 26.77 -- -- 26.19 0.26
Nippon India Small Cap Fund 18,675 10.19 55.32 26.11 16.62 20.40 28.74 0.24
Axis Small Cap Fund 8,984 12.18 45.92 25.96 18.72 18.66 23.19 0.29
Tata Small Cap Fund 2,048 6.94 49.49 25.52 -- -- 25.23 0.26
Union Small Cap Fund 585 6.25 47.18 25.49 12.79 12.85 26.06 0.25
SBI Small Cap Fund 11,831 8.39 45.49 24.98 18.53 20.34 23.64 0.26
S&P BSE 250 Small Cap - TRI -1.98 45.13 16.53 7.41 11.66 31.03 0.16
Returns are point to point and in %, calculated using the Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on June 15, 2022
(Source: ACE MF)
*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. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

SBI Small Cap Fund stands out for its ability to showcase superior performance across most time periods and generate significant alpha for its investors. While the fund has significantly outperformed the benchmark S&P BSE 250 Small-Cap - TRI and the category average during bull market phases, its performance during bear phases has been commendable. Over the longer time period of 5 years and 7 years, the fund outpaced its benchmark by a noticeable margin of around 9 to 11 percentage points.

This outperformance has come at a relatively reasonable risk. The fund's Standard Deviation is lower than that of its benchmark and the category average, whereas it has outperformed many of its peers and the benchmark in terms of risk-adjusted returns (as denoted by the Sharpe ratio).

SBI Small Cap Fund: Identifying High Potential Small-sized Companies
Image source: - photo created by ijeab

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Investment strategy of SBI Small Cap Fund

SBI Small Cap Fund aims to provide investors with opportunities for long-term growth in capital along with the liquidity of an open-ended scheme by investing predominantly in a well-diversified basket of equity stocks of small-cap companies. The fund is mandated to hold a minimum of 65% of its investment in equity & equity-related instruments of small-cap companies (251st company onwards in terms of full market capitalisation, as defined by SEBI).

SBI Small Cap Fund follows a blend of growth and value style of investing. The fund looks to invest in high-growth-oriented multi-bagger stocks of small-sized companies but is cautious about the price he is willing to pay for the stock. He also hunts for temporarily beaten-down stocks available at cheap valuation and does not resist from taking a few short-term calls. It follows the bottom-up approach to stock-picking and is selective while choosing companies within the small-cap space.

Graph 2: Top portfolio holdings in SBI Small Cap Fund

Graph 2 Graph 2
Holding in (%) as of May 31, 2022
(Source: ACE MF)

SBI Small Cap Fund usually holds a fairly-diversified portfolio of about 45 to 50 stocks. As of May 31, 2022, the fund held 50 stocks in its portfolio reasonably diversified across sectors. Among its top holdings, the fund held exposure to Elgi Equipments, Sheela Foam, Vedant Fashions, Blue Star, V-Guard Industries, Fine Organic Industries, and Carborundum Universal, among others. The top 10 stocks in the fund's portfolio collectively account for 32.7% of its assets.

In the last one year, SBI Small Cap Fund has benefited immensely from its holdings in Elgi Equipments, Rajratan Global Wire, Fine Organic Industries, Sheela Foam, Esab India, Lemon Tree Hotels, Timken India, Chalet Hotels, Triveni Turbine, Narayana Hrudayalaya, among others.

The major portion of the fund's portfolio is currently inclined towards Engineering (22.8% of its assets), followed by Chemicals, Consumer Durables, and Consumption with allocation in the range of 8-11% in each. Retail, Construction, Hotels, Cement, and Auto Ancillaries are among the other prominent sectors in the portfolio. The fund's portfolio is spread across cyclicals and sensitive sectors, with significant exposure to defensives.


SBI Small Cap Fund is one of the well-managed schemes in the small-cap fund category that has built a solid track record for itself and has rewarded its investors well since its inception. It has a proven track record of timely identifying fundamentally sound stocks in the small-cap space that have turned into multi-baggers and have helped the fund regain its spot among top category performers.

Being a small-cap biased fund, SBI Small Cap Fund is bound to witness extreme volatility in conditions when the small-cap stocks are under pressure or see a sharp correction. However, the fund's ability to recognise worthy companies at an early stage of development may help it do well in the long run.

Given its penchant for high-risk-oriented small-caps, SBI Small Cap Fund is suitable only for investors having a very high-risk appetite and a longer investment horizon of at least 7 years. Do note that SBI Small Cap Fund has stopped accepting lump sum investment with effect from September 07, 2020, in order to avoid capacity constraints. Fresh investment is only accepted through SIP mode and is capped at Rs 25,000 per month per PAN.


Warm Regards,
Divya Grover
Research Analyst


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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.


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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 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.

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Details of associates

  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. 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;

  12. Suresh Lulla;

  13. I V Subramaniam.

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; except for some of the Research Analysts holding units of SBI Small Cap Fund;

  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.

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Quantum Information Services Private Limited CIN: U65990MH1989PTC054667 Regd. & Corp. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021 Website: Tel.: 022 61361200 Fax.: 022 61361222 SEBI-registered Investment Adviser. Registration No. INA000000680, SEBI (Investment Advisers) Regulation, 2013

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