ABSL Nifty Smallcap 50 Index Fund Review

Published on / By M. Pattabiraman Twitter: @pattufreefincal

Published: March 15, 2021 at 10:57 am

Last Updated on December 29, 2021 at 6:07 pm

Aditya Birla Sun Life Nifty Smallcap 50 Index Fund is an open-ended scheme tracking Nifty Smallcap 50 total return Index. In this review, we find out if investors considering this index would get anything different or extra compared to existing index funds like NIfty Midcap 150 or Nifty Next 50.

The AMC is also launching the ABSL Nifty Midcap 150 Index Fund at the same time. We have already twice reviewed similar index funds and established that investors are better off with a Nifty Next 50 index fund. Therefore we will not review this fund.  The interested reader can consult: Motilal Oswal Nifty Midcap 150 Index Fund: Should you invest? And Nippon India Nifty Midcap 150 Index Fund Review and Should I start a SIP in Midcap 150 Index fund for diversification?

Let us first consider the AMC’s claims and why they think a Smallcap 50 index fund is worthy of consideration.

  1. The scheme one-pager opens with the claim: “Investing in smallcap opportunities could lead to big accomplishments in the long run.”
  2. The fund campaign page says, ” tracking the top small cap 50 companies, lends a combination of focus yet diversification with liquidity to the portfolio.”
  3. “Allows investors to invest in emerging companies that operate in high growth sectors.”
  4. “Balancing of risk with growth potential: Opportunity to invest in companies that can achieve accelerated growth by taking advantage of the favourable economic environment.”
  5. The campaign page also has a graph with the claim “Mid & Small Caps Outperform in every Economic Recovery,” This graph uses Nifty Midcap 100 and Nifty Smallcap 100 – not the indices on offer!!

Claims no 1 & 5: We have already established that small cap and mid cap index investing is not always favourable compared to large caps: Large Cap vs Mid Cap vs Small Cap Funds: Which is better for long term investing?

🔥Secure your future with our Robo-advisory tool trusted by over 3,500 investors and advisors. From effortless retirement planning to funding your children’s biggest dreams,  turn your financial goals into reality. 🔥

Subscribe for money management solutions via email! (Link takes you to our email sign-up form) Join 32,000+ readers in our community.

This since inception comparison of Nifty Smallcap 50 TRI vs Nifty Next 50 TRI needs no explanation!

Nifty Smallcap 50 TRI vs Nifty Next 50 TRI compared since inception
Nifty Smallcap 50 TRI vs Nifty Next 50 TRI compared since inception.

Claim no 2: Will investing in ABSL Nifty Smallcap 50 Index Fund and not say the Motilal Oswal Nifty Smallcap 250 Index Fund provide better “focus” – AMCs would keep saying this without ever quantitatively defining it!

Nifty Smallcap 50 TRI vs Nifty Smallcap 250 TRI

The five-year and ten-year rolling returns of the Nifty Smallcap 50 Index vs the Nifty Smallcap 250 Index (all analysis with total returns) are shown below.

Five year rolling returns of Nifty Smallcap 50 TRI vs Nifty Smallcap 250 TRI
Five-year rolling returns of Nifty Smallcap 50 TRI vs Nifty Smallcap 250 TRI
Ten year rolling returns of Nifty Smallcap 50 TRI vs Nifty Smallcap 250 TRI
Ten-year rolling returns of Nifty Smallcap 50 TRI vs Nifty Smallcap 250 TRI

Clearly, there is nothing special in selecting “50 small cap stocks out of a universe of 250 stocks”. Yes, it would help the fund manager reduce tracking errors, but Smallcap 50 index has consistently underperformed the Smallcap 250 index.

Claims no 3 and 4: In a market-cap weighted index fund, the index curator makes no special effort to choose “high growth sectors” or choose stocks that take “advantage of the favourable economic environment”. They look at the past market capitalization (price movement + shares outstanding + liquidity) and pick stocks.

Nifty Smallcap 50 TRI vs Nifty Next 50 TRI vs Nifty Midcap 150 TRI

The 5,7, and 10-year rolling return data for Nifty Smallcap 50 TRI (yellow), Nifty Next 50 TRI (brown), Nifty Midcap 150 TRI (pink) is shown below. Nifty Smallcap 250 TRI (green) is also included for comparison.

Notice how the pink and brown lines fall close to each other. This is why Nifty Midcap 150 TRI is not necessary. Nifty Next 50 will get the job done.

Five year rolling returns of Nifty Smallcap 50 TRI vs Nifty Smallcap 250 TRI vs Nifty Next 50 TRi vs Nifty Midcap 150 TRI
Five-year rolling returns of Nifty Smallcap 50 TRI vs Nifty Smallcap 250 TRI vs Nifty Next 50 TRi vs Nifty Midcap 150 TRI
Seven year rolling returns of Nifty Smallcap 50 TRI vs Nifty Smallcap 250 TRI vs Nifty Next 50 TRi vs Nifty Midcap 150 TRI
Seven-year rolling returns of Nifty Smallcap 50 TRI vs Nifty Smallcap 250 TRI vs Nifty Next 50 TRi vs Nifty Midcap 150 TRI
Ten year rolling returns of Nifty Smallcap 50 TRI vs Nifty Smallcap 250 TRI vs Nifty Next 50 TRi vs Nifty Midcap 150 TRI
Ten-year rolling returns of Nifty Smallcap 50 TRI vs Nifty Smallcap 250 TRI vs Nifty Next 50 TRi vs Nifty Midcap 150 TRI

Nifty Next 50 TRI also tends to beat Nifty Smallcap 50 TRI comfortably.

In summary, we recommend that investors avoid both the NFOs from ABSL: ABSL Nifty Smallcap 50 Index Fund and ABSL Nifty Midcap 150 Index Fund.  All they need is a Nifty Next 50 index fund.  They can combine Nifty and Nifty Next 50 in different ways to create large-cap or midcap-tilted portfolios.

Also, see: