Kirtan Shah: Ideally, if you look at risk return data points, the answer to this question is very simple.

If you allocate an equal proportion to a large, mid and small cap versus a multicap or a flexicap, you will see that on a risk-return basis, the large, mid and small cap provided a much better performance than the flexicap. invest in a multicap or a flexible capsule.

For someone who is very clear that he has at least five, seven years of investment horizon, he should definitely make a large, mid and small cap fork in the fund rather than choosing a multicap or a flexicap.

It’s a better portfolio building strategy than simply investing in two or three multicaps or flexicaps and letting the fund manager decide what he really wants to do.

While you’re trying to invest in a small cap, I certainly wouldn’t advise anyone under the age of five or seven to invest in a small cap, regardless of last year’s performance. been.

In fact, in the current situation, it’s more of a problem because you’re not sure if the reviews are correct to get paid at the time. There is too much macroeconomic overhang and that can certainly have a bigger impact, probably, if the markets are to move south.

The biggest challenge I see on the small cap side is actually the assets under management of the fund. We all know that everyone continues to move towards a fund that has performed well and that assets under management continue to increase.

Let me give an example of the two funds mentioned – Nippon Small Cap and Quantum. Now, both of these funds started in 2013, so they have a good eight to nine year history that you can look back on and see how well the funds have performed.

If you look at fund returns, both have done very well. Nippon now manages nearly Rs 19,200 odd crore of AUM, as of March 31.

If you look at the 251st stock, which according to the SEBI definition is classified as small cap, the market capitalization of this stock is almost as good as the AUM that the fund manages. Now, because of this problem, you will see that much of the AUM is not deployed in the small cap space.

Nippon has 141 stocks they have invested in precisely for this reason because they cannot invest Rs 19,000 crore in small caps.

Exposure to small caps is only 45% of the total portfolio because you have the freedom to move across large caps and mid caps. They have only invested 45% in small caps and this is actually a problem for all small cap funds, at least on the performance side of stocks.

If you look at Quant, it has increased aggressively. They have been able to achieve this over the past 1.5 years thanks to their performance, but they are still close to Rs 1,600 crore AUM. In terms of AUM, Quant is in a much better position than probably Nippon.

They only manage 56 stocks due to the kind of money they have to deploy. They don’t really need to go collect 150 shares. If you look at the small cap exposure in Nippon, it’s 56%, which is probably the highest in most of the funds we’re discussing today.

Talking about a small cap fund where you want the fund to have small cap exposure, lower AUM, higher small cap exposure and lower turnover rate probably works well. So I wouldn’t mind watching Quant Small Cap either.