Reliance Small Cap Fund, an aggressive fund for an aggressive investor

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The Reliance Small Cap Funds has been ranked as the third strongest small-cap mutual fund for the quarter ended September 2018 by CRISIL based on one-year returns. The primary objective of this fund is to provide the investor with long term capital appreciation by investing the majority of the corpus in small and mid-cap equity and to provide stability to the returns by investing the remainder of the corpus in debt and other stable money market instruments. The Reliance Small Cap Fund has outperformed both the benchmark and category in one, three and five-year investment horizons. As this fund is highly volatile in nature it is not suited to newcomers or first-time investors, but it is suited to aggressive investors who have a high-risk appetite and a long investment horizon of 7 to 10 years at least, as this fund invests in small and mid-cap companies it is highly volatile but can reward the investor handsomely. 

Expected Returns

The Reliance Small Cap fund has been one of the top performing mutual funds in its category and has outperformed its benchmark S&P BSE Small Cap Index, by offering its investors returns of approximately 35% over a 5-year investment horizon with a current expense ratio of 1.15%. The Reliance Small Cap Fund is about 8 years old, demonstrating the robustness of its investment methodology to withstand various market fluctuations. 

How to invest in Reliance Small Cap fund

As of March 26th, 2018, the fund house has stopped accepting lumpsum investments in this fund, but an investor can invest in the Reliance Small Cap Fund through a Systematic Invest Plan (SIP) or a Systematic Transfer Plan (STP) up to Rs. 1 lakh. A subscription limit has been introduced on this fund with a view to safeguarding the interest of existing unitholders.

Exit Load

An exit load of 1% is charged is the fund is redeemed or switched within 1 year from the date of allotment of units. There are no exit load charges for changes thereafter.

Investment Philosophy

This fund primarily invests in stocks of small-cap companies across sectors to provide the investor with relatively higher risk-adjusted returns. For the purpose of this fund small cap companies are considered those companies whose market capitalization is below that of the top 250 companies. Small cap companies have great growth potential and have a lower valuation. 

 Portfolio

The Reliance Small Cap fund primarily invests in small and mid-cap companies across sectors to provide investors with high returns and invests the remainder in debt and money market funds to counteract the effects of market volatility. It presently invests the bulk of the corpus in Consumer durables, chemicals, consumer non-durables, and pharmaceuticals and to counteract market volatility it invests the remainder of the corpus in debt, money market securities, Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). The percentage allocation of investments to each sector against the allocation of investment by the benchmark has been shown via a graph below:

 

 Asset Allocation

The Reliance Small Cap Fund focuses on primarily investing the corpus in equity to receive the highest possible returns, and uses a mix of debt, money market instruments, REITs and InvITs to reduce the risks of market fluctuations on the valuation of the fund. Listed below is the allocation of assets in the Reliance Small Cap Fund.

Instruments

Indicative asset allocation (% of total assets)

Risk Profile

Minimum

Maximum

Equities and equity-related securities of small cap companies including derivatives

65%

100%

Medium to High

Equities and equity-related securities of any other companies including derivatives

0%

35%

Medium to High

Debt and Money market securities (including investments in securitized debt)

0%

35%

Low to Medium

Units issued by REITs and InvITs

0%

10%

Medium to High

Fund Managers

Samir Rachh

Mr Samir Rachh comes with a total experience of 25 years, before joining Reliance Mutual Fund he has worked with Birla Sun Life Insurance as the Assistant Vice President – Investments, IndusInd Bank Ltd. as an Investment Manager, and took over as Fund Manager of Reliance Small Cap Fund in January 2017.

Dhrumil Shah

Mr Dhrumil Shah comes with over 11 years in equity research and investment management. Prior to taking over as the Fund Manager for Reliance Small Cap Funds, he has worked with Birla Sun Life Insurance as Assistant Vice President of Investments and Equity Fund Management and Research. Dhrumil Shah joined as a Fund Manager for Reliance Small Cap Fund in February 2018.

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