Small cap stocks are known to offer higher returns than large caps over the long run. However, they also come with higher risks owing to their smaller size. An hdfc small cap fund can help you harness the potential upside of small caps while mitigating the risks through diversification. Here are 5 key benefits of investing in HDFC Small Cap Fund:

Access to High Growth Potential Small Caps

Small cap companies have a relatively smaller market capitalization compared to large caps. This means they have more scope for growth as they operate in niche segments and have the potential to capture a larger market share over time. The HDFC Small Cap Fund gives you exposure to over 100 such high growth small cap stocks across sectors. Many small caps that are included in the fund’s portfolio today have the potential to become large caps in the future as their businesses scale up. 

Diversification Across Sectors

One of the biggest risks of investing directly in small cap stocks is company-specific risks. The HDFC Small Cap Fund helps address this by investing your money across different small cap companies spanning various sectors like healthcare, technology, FMCG, construction etc. This diversification helps reduce stock-specific risks. As of March 2022, the top 10 holdings of the fund accounted for only about 25% of its assets. Such diversification provides a cushion against risks.

Experienced Fund Management 

The HDFC Small Cap Fund is managed by Mr. Prashant Jain who has over 25 years of experience in the Indian stock markets. He has consistently delivered superior returns since joining HDFC AMC in 2000. Under his stewardship, the fund has outperformed its benchmark index and category average returns over short as well as long term periods. His prudent stock selection and risk management abilities give investors confidence in the fund’s ability to generate alpha over the long run.

Long Term Track Record 

Launched in October 2013, the HDFC Small Cap Fund has a track record of over 8 years. Over this period, it has delivered an annualized return of over 20% for its direct plan, outperforming the S&P BSE Small Cap Index which has given returns of 15-16% annually. Its NAV has grown over 7 times from Rs. 10 in 2013 to Rs. 70 currently. This shows the fund’s ability to steadily grow wealth over long periods by harnessing the power of compounding for investors. 

Low Expense Ratio 

At just 1% per annum, the HDFC Small Cap Fund has one of the lowest expense ratios in the small cap category. This means more of your invested capital is working towards generating returns rather than getting deducted as costs. Its direct plan variant has an even lower expense ratio of just 0.75% per annum. Low costs ensure maximum returns are delivered to investors over the long term.

Conclusion

Investing in a diversified small cap fund like hdfc midcap opportunities fund allows you to participate in the higher growth potential of small caps while mitigating risks through diversification. Its experienced fund management, long track record, and low costs make it a good long term wealth creation option for 5paisa investors with a 5–7 year time horizon who can handle volatility. Do consider adding it to your mutual fund portfolio for superior returns over the long run.