Nippon India Small Cap Fund, launched in September 2010, is the largest small cap fund in the category with an AUM of Rs. 57,010 Crores (as of 31st Jan 25). This is a technical report of how it has evolved.
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Original Small Cap Fund
Nippon India Small Cap is the original small cap fund of the industry. Many current small cap funds started as Mid-cap and Small & Mid-cap funds. Many mid-cap and small & Mid-cap funds were morphed into small-cap funds post-categorization and rationalization framework for Mutual Funds (MFs) introduced by SEBI in 2017
Fund Managers
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Sunil Singhania – From Inception to 01st Jan 2017
Samir Rachh – 02nd Jan 2017 – Present
There have been many co-fund managers, but these two fund managers have been associated throughout the fund’s history.
Key Characteristics of the Fund
From “Diversification” to “Diworsification”
This mutual fund has had a linear relationship between AUM and the stock number in the portfolio. It looks as if this mutual fund has turned into a closet index fund with 233 stocks in the portfolio. This fund has NIFTY Small-cap 250 TRI as its benchmark with 25 stocks. If the AUM continues to increase as it has, there is a decent probability that the fund may have more stocks than the underlying benchmark index.
Reduction in weightage of Top 10, Top 20 and Top 50 stocks in the portfolio
The fund started off as a reasonably concentrated portfolio, but with time and an increase in AUM, the concentration of best ideas has decreased steadily. The concentration of the Top 10 stocks has reduced from 40% (Jan-12) to 14% (Jan-25).
The concentration of Top 20 stocks has reduced from 62% (Jan-12) to 23% (Jan-25).
The concentration of Top 50 stocks has reduced from 87% (Jan-15) to 46% (Jan-25).
Does not take significant cash calls
The fund does not believe in significant cash calls. After the initial construction of a portfolio, the Largest Cash Allocation of 12% (Jan-14). Under the current fund manager, the fund has had lower cash allocation than its initial years under the previous fund manager.
Large Incremental AUM Growth
This fund has seen considerable Incremental AUM growth, i.e. growth in AUM over and above the NAV growth. Except for the initial 3 years of the fund, only from Jan’20 – Jan’21 was the AUM growth lower than the NAV growth. This means the fund has not seen a significant enough redemption cycle in its history of ~14.5 years.
Opinion: Nippon India’s Small Cap fund is far too large for the Small Cap Category. As outlined in Freefincal’s PLUMBLINE Recommendations, Small cap mutual funds can be avoided for nearly all portfolios. A lesson to be learnt from deep analysis of this mutual fund is that mutual funds change their character in many ways. Another problem with small cap mutual funds is the replicability of the same portfolio (I.e. performance) due to significant changes in size.
Note – The author is not associated with the Financial Services industry.
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