NFO Review: ICICI Prudential Smallcap Index Fund
Be a part of India’s growth story by investing in small companies, set to become the next bluechips with ICICI Prudential Mutual Fund’s new index fund that tracks the Nifty Smallcap 250 TRI. Only if you have an appetite for risk.
Passive investing, via index funds, has been gaining popularity in India. They are already one of the most popular forms of investment in the West. When it comes to managing passive funds, ICICI Prudential Mutual Fund is quite an expert, as the fund house manages 22 index funds (including ETFs) making it the second-largest after Nippon AMC, which has 28.
Fund overview
The objective of the scheme is to invest in companies whose securities are included in Nifty Smallcap 250 Index and subject to tracking errors, to endeavor to achieve the returns of the above index. This would be done by investing in stocks comprising the Nifty Smallcap 250 Index in the same weightage that they represent in Nifty Smallcap 250 Index.
This fund’s defined asset allocation is as follows:
| Type of instruments | Min | Max | Risk Profile |
| Equity and Equity related securities of companies constituting the underlying index (NIFTY Smallcap 250 Index) | 95% | 100% | Medium to High |
| Money Market instruments including TREPs and Units of debt schemes | 0% | 5% | Low to Medium |
| Units of Debt ETFs | 0% | 5% | Low to Medium |
Why invest in this fund?
Before we get into the fund details, it is very important for you to understand your risk profile. Its true that early in their growth cycle, the small companies have the potential for very high growth. However, this comes with very high uncertainty as the business is not yet proven. The small cap stock price fluctuations are high translating to high NAV fluctuations for the funds. Plus, many of these stocks also have lower volumes compared to large or mid cap stocks, which can result in liquidity issues when markets tend to fall.
Having said that, if you are someone who is willing to take the risk for high returns, a small-cap fund can be a good investment proposition for you.
If you are all geared up for the risk, here are three reasons why this fund can be a good choice:
| 💰 | 📈 | 🔬 |
| A low-cost way to get exposure to small-sized companies. You can invest as low as ₹100 | Small caps offer higher returns in the long term compared to large or midcap finds, although they come with higher risk too. | The fund tracks the Nifty Smallcap Index, so you are free from human bias. Each stock is selected through pre-defined rules. |
ICICI has good experience in managing passive funds. Moreover, when you look at the statistics, you will see that only seven out of 25 actively managed small-cap funds managed to beat the small-cap index over the last year.
Portfolio-wise, ICICI Prudential SmallCap Index Fund is not concentrated towards a small group of stocks, which is a plus as you are investing in a well-diversified fund.
Fund managers
Kayzad Eghlim, MBA, M.Com, and B.Com Eghlim is the Vice President and Fund Manager at ICICI Prudential Asset Management Company Ltd. He has more 29 years of experience and has been with ICICI Pru AMC since June 2008. He is currently managing 24 funds at ICICI AMC, most of them with Nishit Patel.
Nishit Patel, BCom & CA Total 8 years work experience, of which 4 is in fund management. Manages passive funds at ICICI Prudential AMC. He has been working with ICICI Pru AMC since June 2017 and currently managing 24 funds, most of them with Kayzad Eghlim.
Similar funds
Here is a list of other index funds tracking the Smallcap index:
- Nippon India Nifty Smallcap 250 Index Fund (AUM: ₹212.5 crore)
- Motilal Oswal Nifty Smallcap 250 Index Fund (AUM: ₹ 220.63 crore)
- Aditya Birla Sun Life Nifty Smallcap 50 Index Fund (AUM: ₹39.51 crore)
*AUM as of 20th October 2021
Should you invest?
So, if you want to invest in a small-cap fund, and you have a high appetite for risk, this index fund would be a good place to start. Make sure your investment horizon is at least five years given its equity and small-cap status.
