Is Tata Small Cap Fund Good to Invest? Get An Expert's Review
The track record of the Tata Small Cap Fund shows that the scheme has given annualized returns of 22.28% since its launch.
Not only this, the fund’s AUM (Asset Under Management) has grown from Rs 190 crores in 2018 to Rs.9,000 crores by March 2025. Such an impressive performance, despite being a small cap fund, is hard to overlook.
But does this mean you should start investing in the scheme right away?
As they say, “Look before you leap” to avoid harmful consequences. The same applies here as well.
And to help you make a wise investment decision in your life, this Tata Small Cap Fund review thoroughly explores the key performance measures of this scheme like rolling returns, asset allocation, sector allocation, fund managers and stock quality.
So without wasting any more time, let’s get started with the outstanding rolling returns of the scheme.
Sky High Rolling Returns of Tata Small Cap Fund
The scheme has given rolling returns of 31.89% in 3 years and 31.06% in 5 years. The Tata Small Cap Fund regular growth has outperformed its benchmark in both 3-year and 5-year plans.
No doubt these returns are “Sky high”. And a plus point is that the Tata Small Cap Fund expense ratio is only 1.65%. This means your annual returns will not be eaten up by the fund management fees.
Pro Tip: Fast-track your portfolio using the SIP Calculator free of cost.
But how did the scheme manage to give such good returns? The mystery may lie in its asset allocation.
Asset Allocation of Tata Small Cap Fund
The scheme invests 91.1% of its assets in equity stocks and 8.9% of its assets in cash and its equivalent. And if you carefully observe the graph below, you will see that a very small 0.1% of assets are allocated to debt stocks:
Asset Allocation of Tata Small Cap Fund
The fund has maintained a great level of focus on equity stocks, which means that it is dedicated to giving you huge returns, as Equity Funds hold significant growth potential.
However, investing in cash and its equivalent stocks shows that the liquidity of your investment and the stability of your portfolio are also taken care of.
Asset allocation can also be viewed from the lens of market cap, so let us have a look at it.
Market Cap Allocation
Since this fund belongs to the Small Cap Mutual Funds, it is mandated to invest at least 65% of its assets in small cap stocks and it does the same. It invests exactly around 65% in these stocks.
You can refer to the graph below for the exact values:
And to make sure that you get risk-adjusted returns, the Tata Small Cap Fund invests the remaining 34.27% of its assets in midcap companies. These stocks will provide balanced growth to your portfolio.
It is good that the scheme has managed a balanced asset allocation. But it is more important to know about the sectors that the fund has invested in. What if they are not the promising ones?
Analyzing the Sector Allocation of Tata Small Cap Fund
The fund has invested around 25% of its assets in materials and nearly 18% of its assets in industrials. These two sectors are considered to be the most promising among all.
The scheme has also invested its assets in consumer discretionary, healthcare and financial sectors. And their percentage shares are 12.27%, 10.51% and 9.02% respectively.
You can refer to the graph below for a clear view of it:
“Did you observe something special in this sector allocation?”
The scheme has not concentrated its assets in any one sector beyond a certain limit. And an interesting insight is that the scheme has invested in international giants like Alphabet and Microsoft.
This tells that your money is invested in only highly reputable companies in their respective sectors.
Important Read: SIP Investment: Know the pros and cons of doing it.
Such a diversified allocation and identification of potential companies is not possible without the help of Mutual Funds expert with decades of working experience.
So, let’s talk about the talented masterminds behind it.
Time To Talk About the Fund Managers
The fund house, Tata Mutual Fund, has a team of highly talented fund managers who are handling your portfolio in the most profitable way. And among them, there are two people about whom you must know:
Mr. Chandraprakash Padiyar
Mr. Padiyar is the lead fund manager and has been handling the fund since 2018. He is a certified CFA (Chartered Financial Analyst) with a working experience of more than 20 years in research and fund management.
He is responsible for implementing a unique growth-oriented investment strategy called the “GARP strategy” (Growth at a reasonable price).
Mr. Jeetendra Khatri
Mr. Khatri joined the fund management team of Tata Small Cap Fund Regular Growth in October 2023. He has previously worked in top firms and hence brings a rich research experience to the team.
This duo is mostly responsible for making sure that your money gets invested in quality stocks. And that your portfolio is protected from the market fluctuations.
Remember the GARP strategy being implemented by Mr. Padiyar. This strategy is so good that it would be unfair to just finish it in two lines. It deserves a dedicated section.
Growth At a Reasonable Price (GARP) Strategy
GARP strategy blends the two most important elements of investment, which are growth and value-based investing. The following are the key features of this strategy:
- Balanced approach to attain growth at reasonable valuations.
- Great level of focus on stocks with strong fundamentals.
- Investment in stocks with a moderate risk profile.
Thus, this strategy aims to invest in stocks that offer sustainable growth and are also not of very high valuations. This strategy helps the fund managers to avoid investing in overpriced stocks thus reducing the risk of overvaluation for you.
Besides, fund managers invest in these quality stocks for the long term. This is called a buy-and-hold approach. This way, they make sure that you get the maximum returns on your SIP or lump sum investment.
Smart Investments, Bigger Returns
But another question that’s raised is, “How good is the quality of these stocks?” Let’s cover that in the next heading.
How Good is the Stock Quality of the Tata Small Cap Fund?
The stock quality of the Tata Small Cap Fund Regular Growth is overall very good. The scheme has outperformed the category average in all four parameters, as mentioned in the table below:
The following are the key findings from the table:
- A P/E of 22.21 shows that the fund is investing in quality stocks which is why the value is very high.
- Earnings growth of 16.28% means the companies in which the scheme invests are growing at a significant rate.
- The sales growth of 11.07% also shows that the fund is earning great profits from both the small cap and mid cap companies.
- The cash flow growth of 9.26% shows that companies are generating enough cash which provides greater financial stability.
So far, this review has talked about all the important parameters that are necessary to answer the question: Is Tata Small Cap Fund Good?
But you may be thinking why only good things about the scheme are being discussed. Isn’t there any negative side to this fund or is this “The perfect scheme” in the market?
Of course not, there are some negatives about the scheme. And since this is an unbiased fund review, the next section will talk about its risk profile.
Risk Ratios
The standard deviation (SD) for the fund is 16.27, which is not very high if you compare it with the category average. Such a low SD means the scheme is giving stable returns.
A Sharpe ratio of 0.97 shows that the scheme provides risk-adjusted returns despite being a small cap fund. However, the maximum fall of the scheme is -22.29.
It may seem very high, but this value is derived for the period of only 5 months which is not ideal to determine the overall performance of a small cap fund.
Because the risk of market volatility can have significant impacts on small cap funds in the short term.
Now, let’s wrap up this Tata Small Cap Fund Review with the bottom line.
Bottom Line
This scheme allows you to start a SIP from the minimum amount of only Rs.100, which enhances its accessibility to a wider range of investors, including students. So, the bottom line is that this scheme can be a gateway for you to create your future wealth.
You just need to make sure that your investment goals align with the fund so that you can get the maximum benefits from it.
