Check out these large-cap safety nets in small-cap mutual funds

Apart from the mandated allocation of 65 percent in smallcap stocks, smallcap mutual fund schemes can deploy the remaining corpus in midcap and largecap stocks, or hold it in cash. Per the latest data, the smallcap category ploughed 72 percent into smallcap stocks, 14 percent into midcaps, five percent towards largecaps, and held 9 percent in cash. Assuming cash holding is a temporary strategy pending deployment, a higher allocation towards largecap stocks mitigates risk when equity markets appear overvalued.

Interestingly, seven out of 15 smallcap funds increased their largecap holding over the past year. “One of the reasons for having largecaps stocks in smallcap funds is to manage liquidity risk,’’ says Samir Rachh, Fund Manager – Equity Investments, Nippon India Mutual Fund. The Nippon India Small Cap Fund, the largest scheme in the category, has allocated about 13 percent to largecap stocks.
The other reason is that there are some sectors where there are no advantages of buying smallcaps, such as landing business, oil and gas, commodities, etc., due to reasons of scale, Rachh adds. It makes more sense to invest in largecaps in these sectors.
Not all smallcap managers bet on largecap stocks though. R Srinivasan, CIO – Equity, at SBI Mutual Fund, says, “We avoid taking meaningful positions in largecaps in the smallcap fund. However, we do have a large position in Nifty futures which you may consider as large cap. This is because our maximum cash exposure is limited to 10 percent, and we need to deploy anything over that to mitigate market risk.”
Here are the most popular largecap stocks among 24 smallcap funds. The portfolio data is as of August 31, 2023. Source: ACEMF.

Tube Investments of India No. of smallcap funds that held the stock as of Aug 2023: 9 Sample of smallcap funds that held the stock: Nippon India Small Cap and PGIM India Small Cap Also see: 13 Smallcap Gems That Infrastructure Mutual Funds Love to Hold Tube Investments of India
No. of smallcap funds that held the stock as of Aug 2023: 9
Sample of smallcap funds that held the stock: Nippon India Small Cap and PGIM India Small Cap

Also see: 13 Smallcap Gems That Infrastructure Mutual Funds Love to Hold

HDFC Bank No. of smallcap funds that held the stock as of Aug 2023: 6 Sample of smallcap funds that held the stock: Quant Small Cap and Nippon India Small Cap HDFC Bank
No. of smallcap funds that held the stock as of Aug 2023: 6
Sample of smallcap funds that held the stock: Quant Small Cap and Nippon India Small Cap

Bank Of Baroda No. of smallcap funds that held the stock as of Aug 2023: 4 Sample of smallcap funds that held the stock: HDFC Small Cap and LIC MF Small Cap Also see: Stocks With Multiple Faces! Common Names Across Smart-Beta MFs Bank Of Baroda
No. of smallcap funds that held the stock as of Aug 2023: 4
Sample of smallcap funds that held the stock: HDFC Small Cap and LIC MF Small Cap

Also see: Stocks With Multiple Faces! Common Names Across Smart-Beta MFs

Zomato No. of smallcap funds that held the stock as of Aug 2023: 3 Sample of smallcap funds that held the stock: ITI Small Cap and Invesco India Smallcap Zomato
No. of smallcap funds that held the stock as of Aug 2023: 3
Sample of smallcap funds that held the stock: ITI Small Cap and Invesco India Smallcap

Axis Bank No. of smallcap funds that held the stock as of Aug 2023: 3 Sample of smallcap funds that held the stock: Aditya Birla SL Small Cap and Bandhan Emerging Businesses Also see: Buy-and-hold: Mutual Fund schemes that churn the least Axis Bank
No. of smallcap funds that held the stock as of Aug 2023: 3
Sample of smallcap funds that held the stock: Aditya Birla SL Small Cap and Bandhan Emerging Businesses

Also see: Buy-and-hold: Mutual Fund schemes that churn the least

Cholamandalam Investment and Finance Company
No. of smallcap funds that held the stock as of Aug 2023: 3
Sample of smallcap funds that held the stock: Edelweiss Small Cap and ITI Small Cap

LTIMindtree No. of smallcap funds that held the stock as of Aug 2023: 3 Sample of smallcap funds that held the stock: Canara Rob Small Cap and Sundaram Small Cap Also see: MC30 scheme review: Why PGIM India Midcap Opportunities Fund is a long-term wealth creator LTIMindtree
No. of smallcap funds that held the stock as of Aug 2023: 3
Sample of smallcap funds that held the stock: Canara Rob Small Cap and Sundaram Small Cap

Also see: MC30 scheme review: Why PGIM India Midcap Opportunities Fund is a long-term wealth creator

Reliance Industries No. of smallcap funds that held the stock as of Aug 2023: 3 Sample of smallcap funds that held the stock: Quant Small Cap and Canara Rob Small Cap Reliance Industries
No. of smallcap funds that held the stock as of Aug 2023: 3
Sample of smallcap funds that held the stock: Quant Small Cap and Canara Rob Small Cap

Sun Pharmaceutical Industries
No. of smallcap funds that held the stock as of Aug 2023: 3
Sample of smallcap funds that held the stock: Canara Rob Small Cap and ITI Small Cap
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