Investing In Hdfc Small Cap Fund: Is It Worthwhile?

HDFC Small Cap Fund is a mutual fund scheme from HDFC Mutual Fund that predominantly invests in small-cap companies with a long-term capital appreciation objective. With an expense ratio of around 1.5-1.6%, this fund carries a high risk and is suitable for investors who can remain invested for at least 3-4 years, seeking very high returns while also being prepared for the possibility of substantial losses.

HDFC Small Cap Fund's performance and risk

HDFC Small Cap Fund is a small-cap mutual fund scheme from HDFC Mutual Fund. It was launched on 1st January 2013 and has been in existence for almost 12 years. The fund has delivered average annual returns of 21.53%-21.54% since its inception and has doubled the money invested in it every 3 years. The fund has generated 33.29% returns in the last year. The HDFC Small Cap Fund has an expense ratio of 0.66%, which is close to what most other small-cap funds charge.

The fund has a very high level of risk. It has 93.25% investment in domestic equities, with 3.12% in Large Cap stocks, 3.45% in Mid Cap stocks, and 68.96% in Small Cap stocks. The fund is suitable for investors who are looking to invest money for at least 3-4 years and are seeking very high returns. However, these investors should also be prepared for the possibility of higher losses in their investments.

The fund's ability to deliver returns consistently is in line with most funds in its category. Its ability to control losses in a falling market is below average. The fund has the majority of its money invested in the Services, Capital Goods, Healthcare, Financial, and Automobile sectors. Its top 5 holdings are in Firstsource Solutions Ltd., eClerx Services Ltd., Bank Of Baroda, Aster DM Healthcare Ltd., and Sonata Software Ltd.

The NAV or Net Asset Value of the HDFC Small Cap Fund as of 18th October 2024 is 159.11. The fund has ₹33,963 crores worth of assets under management (AUM) as of 30th September 2024.

HDFC Small Cap Fund's expense ratio

The expense ratio of the HDFC Small Cap Fund is 0.66% as of August 31, 2024. This is close to what most other Small Cap funds charge. The expense ratio is an annual fee charged by a mutual fund house for managing your investments in that fund. It is a percentage of the Assets Under Management (AUM) and is taken from the returns generated by the fund. Therefore, a fund with a lower expense ratio is preferable as it results in higher returns for the investor.

HDFC Small Cap Fund's asset allocation

The HDFC Small Cap Fund has an asset allocation of 93.25% in domestic equities, with a focus on small-cap stocks. This includes investments in large-cap stocks (3.12%), mid-cap stocks (3.45%), and small-cap stocks (68.96%). The remaining 6.75% is allocated to other investments.

As of 30 September 2024, the fund had invested in various sectors, with the top five being Services, Capital Goods, Healthcare, Financial, and Automobile. The fund's portfolio turnover ratio is 25.78%, and it has a history of holding stocks/bonds in its portfolio for longer durations than its peers.

The HDFC Small Cap Fund is suitable for investors who are willing to invest for at least 3-4 years and are seeking very high returns. However, it's important to note that these investors should also be prepared for the possibility of higher losses in their investments.

HDFC Small Cap Fund's tax implications

When considering investing in the HDFC Small Cap Fund, it is important to understand the associated tax implications. Here is a detailed overview of the tax implications for investors in HDFC Small Cap Funds:

Short-Term Capital Gains Tax

If you sell your mutual fund units within one year of purchasing them, short-term capital gains tax will apply. The current tax rate for short-term capital gains is 20%, excluding any cess or surcharge. This means that any profits made from selling the units within a year will be taxed at this rate.

Long-Term Capital Gains Tax

On the other hand, if you sell your mutual fund units after holding them for more than one year, long-term capital gains tax will apply. The tax rate for long-term capital gains is 12.5% if your total long-term capital gains exceed 1.25 lakh rupees in a financial year. Again, any cess or surcharge is not included in this rate.

Exit Load

It is important to note that there is an exit load of 1% if you redeem your investment within one year. This means that if you decide to exit your investment in HDFC Small Cap Fund before completing one year, you will be charged a fee of 1% of your investment amount.

Dividend Taxation

Dividends received from HDFC Small Cap Funds are added to the income of the investors and taxed according to their respective income tax slabs. Additionally, if an investor's dividend income exceeds 5,000 rupees in a financial year, the fund house will deduct a Tax Deducted at Source (TDS) of 10% before distributing the dividend.

Taxation on Redemption

If you redeem your mutual fund units after one year from the date of investment, the tax implications differ. Gains up to 1 lakh rupees in a financial year are exempt from tax. However, gains exceeding 1 lakh rupees will be taxed at a rate of 10%. On the other hand, if you redeem your units within one year of investment, the entire amount of gain is taxed at a rate of 15%.

It is important to note that the tax rates mentioned above may change over time, and investors should consult the latest tax regulations before making any investment decisions. Additionally, investors should seek professional tax advice to understand how these tax implications apply to their specific circumstances.

HDFC Small Cap Fund's investment process

The HDFC Small Cap Fund is a mutual fund scheme that seeks to provide long-term capital appreciation and income by investing predominantly in small-cap companies. Small-cap funds are those that select stocks for investment from the small-cap category, which includes all stocks except for the largest 250 stocks by market capitalization.

HDFC Small Cap Fund has been in existence for over 11 years, having been launched on 1st January 2013. The fund has around ₹33,963 crores worth of assets under management as of 30th September 2024 and is considered a medium-sized fund in its category. The expense ratio of the direct plan of the fund is 0.66%, which is close to what most other small-cap funds charge.

The fund has delivered average annual returns of around 21.5% since its inception and has doubled the money invested in it every 3 years. The fund's ability to deliver consistent returns is in line with most funds in its category, but its ability to control losses in a falling market is below average.

HDFC Small Cap Fund has a very high risk associated with it, as per SEBI's Riskometer. It is suitable for investors who are looking to invest money for at least 3-4 years and are seeking very high returns. These investors should also be prepared for the possibility of higher losses in their investments.

The fund has invested the majority of its money in the Services, Capital Goods, Healthcare, Financial, and Automobile sectors. Its top holdings include Firstsource Solutions Ltd., eClerx Services Ltd., Bank of Baroda, Aster DM Healthcare Ltd., and Sonata Software Ltd.

The Net Asset Value (NAV) of the fund as of 18th October 2024 was 159.11. The fund has a lock-in period of 1 year, and the exit load is 1% if redeemed within that period.

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