UTI Small Cap Fund NFO Review – Can we expect 15% annualized returns

UTI Small Cap Fund NFO – Can we expect 15% annualized returns?

UTI Small Cap Fund NFO Review – Can we expect 15% annualized returnsUTI Small Cap Fund – Should you Invest?


UTI Small Cap Fund NFO would open for subscription on 2nd December, 2020. Small Cap mutual funds invests in small cap stocks and are considered as high risk. Small cap category has been lagging behind its performance in the last couple of years. However, post covid-19 market crash, when the stock market recovery is happening in the last 6 months, this segment started performing well. Yes, stock market is up keeping fundamentals aside this time. Should you invest in UTI Small Cap Fund NFO then? Can we expect 15% annualized returns from such small cap funds?

Also Read: 5 Smallcap Mutual Funds with 60% returns in 1 year

What are Small Cap Mutual Funds?

As the name indicates, Small Cap Mutual Funds invest in small cap stocks. Small cap stocks are categorized as companies that are counted after 250th rank from market capitalization. These could be small companies, but some of them might turn to be multi bagger stocks. E.g. Deepak Nitrite, a multi bagger stock gave 1,700% returns in 5 years (Rs 1 Lakh invested 5 years back turned to be Rs 11.7 Lakhs today). That’s the power of small cap stock.

UTI Small Cap Fund NFO Issue Details

This is an open-ended mutual fund scheme. Here the NFO issue details.

UTI Small Cap Fund – NFO Issue Details
Scheme Opens 02-Dec-20
Scheme Closes 16-Dec-20
Scheme reopens for continous purchase/sale Within 5 days from closure
Minimum investment (Lumpsump) Rs 5,000
Minimum investment (SIP) Rs 500 for 6 months
NAV of the fund Rs 10 during NFO period
Entry Load Nil
Exit Load 1% load – If exited within 1 year
Risk Moderately High Risk
Max Total expense Ratio (TER) 2.25%
Benchmark Nifty Smallcap 250 TRI
Fund Manager Ankit Agarwal

Download UTI Small Cap Fund NFO Prospectus

Who can invest in this mutual fund scheme?

Any of the following can invest in this scheme.

1) Resident Individuals

2) Resident Indian Nationals, including partnership forms, companies, Banks, HUFs, Sole Proprietorship etc.,

3) NRI’s

4) Foreign Portfolio Investors

What is the investment objective of UTI Small Cap Fund NFO?

The objective of the scheme is to generate long-term capital appreciation by investing predominantly in equity and equity related securities of small cap companies.

However, there is no assurance or guarantee that the investment objective of the Scheme will be realized.

What is the allocation pattern in this mutual fund scheme?

This fund investment pattern is as follows:

Type of instruments Min % Max % Risk Profile
Equity & Equity related instruments (Minimum of 65% in small cap companies) 65% 100% Medium to High
Debt & Money Market Instruments 0% 35% Low to Medium
Units issued by REITs & InvITs 0% 10% Medium to High

Why should you invest in such Small Cap Funds?

Here are a few reasons to invest in such schemes.

1) Smallcap mutual funds invests in small cap stocks. Small businesses are often referred as backbone of Indian economy. It has presence across the sectors primarily in manufacturing, retailing, services, construction etc., In the recent years, a wide spectrum of initiatives and opportunities are set forth by the government to nurture the small businesses. Therefore, in long-run the share of small companies to the economic growth is likely to expand. So if you want to be part of the growth journey of young companies, some of which may become tomorrow’s leaders then consider investing in such small cap fund.

2) Small cap funds is one of the category of mutual funds that gave superior returns of 12% to 18% in the long term. If you want to take risks and expect high returns, small cap funds are best suitable to you.

3) If you are mutual fund investor and want to invest some portion in small cap segment, you can consider such funds.

Some risk factors you should consider before investing in such funds

One should consider some of these risk factors / negative factors before investing.

1) Small cap funds invest in small cap stocks which are considered as HIGH RISK. Unless you are a high risk investor, you can should stay away from such schemes.

2) There could be under performance in the small cap segment for various reasons, e.g. what we could see Small cap segment under performance for 2017 to 2019. Investors should be willing to have patience in such case.

3) This fund invests up to 35% in debt instruments. This segment has turned to be high risk due to defaults from corporates.

4) This fund invests up to 10% in in REITS and InvITS which are high risk.

5) Since it is a new mutual fund scheme, there is no past performance, hence we would not know, how the fund would perform in the future.

6) You can go through all risk factors indicated in the scheme related documents before investing.

Also Read: Burger King IPO – Should you invest in this IPO?

How is the Performance of existing Small cap funds?

Here is the performance of current small cap funds.

Fund Name 1 Year 5 Year 10 year
SBI Small Cap Fund 24.6% 15.5% 18.5%
Axis Small Cap Fund 18.9% 13.4% NA
Kotak Small Cap Fund 28.3% 11.6% 12.9%
Nippon India Small Cap Fund 21.6% 11.3% 16.6%
L&T Emerging Businesses Fund 8.9% 9.8% NA
HDFC Small Cap Fund 10.0% 9.7% 10.3%
DSP Small Cap Fund 29.4% 9.4% 14.8%
Quant Small Cap Fund 60.2% 8.2% 8.2%
ICICI Prudential Smallcap Fund 15.8% 7.8% 10.4%
Union Small Cap Fund 22.5% 6.8% NA
Franklin India Smaller Companies Fund 10.3% 6.6% 13.6%
Aditya Birla Sun Life Small Cap Fund 13.3% 6.3% 10.2%
HSBC Small Cap Equity Fund 20.7% 6.0% 8.1%
Sundaram Small Cap Fund 16.4% 3.7% 9.7%

Should you invest in the UTI Small Cap Fund NFO?

This mutual fund scheme invests in the small cap segment. This segment can provide good returns of say 12% to 18% (though not guaranteed) if invested for long term of say 8-10 years. However, small cap funds are high risk. Many small companies can collapse for various reasons (e.g. what we are seeing today due to lock-downs). If you are a high risk investor and willing to invest for long term of say 8-10 years, one can invest in such funds. If you do not want to test new funds, you can invest in some of the consistent performing small cap funds through SIP. One should avoid investing in lump sum in such schemes unless you are investing during the stock market crash. If you are moderate to high risk investor, stay away from such schemes.

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Suresh KP

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