A Primer on Nifty Smallcap 250 Index | NFO - Groww Nifty Smallcap 250 Index Fund

[@KUMARAMV]

Thank you! I think there are two issues with smallcap index fund. (1) Just the way the index is constructed, the best performing stocks of the smallcap index move out of it to midcap index and worst performing midcap stocks end up in the smallcap index. As a result, smallcap index funds underperform over long periods of time. In fact, over long periods of 15-20 years, smallcap index fails to beat the midcap and just about matches nifty50 index (which comes at the cost of huge volatility). (2) The most crucial aspect of smallcap index is the huge drawdowns it goes through periodically. This is managed well in an active strategy. Hence one can notice that ~70% of active smallcap funds comfortably beat the index. In case of largecap, the converse is true - most active funds fail to beat the index. For these reasons, I prefer choosing an active smallcap fund compared to index.

[@maverickrahul104]

Great insight!!

[@privacyowl]

Perfectly summarized the biggest issues with a smallcap index fund. If I may add another point - (3) Liquidity concerns - quite difficult to rebalance some of the smallest cap stocks in this index due to liquidity issues. Might induce large tracking errors.

[@shankarnath]

Thx for sharing. To keep this going, I have a question for you and a comment for you. I tried to tone it down but both are sounding a bit aggressive although I don't mean it :) .. sorry about that! Question: 1. You raised the point on the smallcap index missing out on multibaggers & the poor performers from midcaps entering smallcaps. As it happens, the midcap index goes through the same format i.e. good midcap stocks become largecaps and the poor largecap performers become midcappers. And yet the midcap index beats the largecap & the smallcap index. Why does it happen for midcaps and not for smallcaps? 2. Corollary to point 1. Why isn't the largecap index the best performers? Afterall, the largecap index receives the best performing midcap stocks and doesn't have to lose its own best performers as there is nothing above the largecap index Comment: 3. I support the phrase "active strategy" but I must contest that it doesn't mean an actively managed mutual fund is the only path. A financial advisor/MF agent might insist on it and I hope you aren't one. Now in my view, an active strategy can be as simple as building a set of rules around the smallcap PE ratio wherein one invests in the smallcap 250 index fund when the valuations are cheap and pauses when valuations are expensive. I've taught this concept in previous videos and have seen a 2-3% lift in returns -- which pushes the index fund's performance to the 3rd decile in the smallcap ranking stack. You mentioned downside protection; it might surprise everyone that when valuations are high, fund managers don't have better picks, they simply stop adding money into the fund and keep upto 15% in debt/cash Infact this stopping SIP or lumpsum or both is an important one for everyone to understand. If one thinks logically, by stopping taking in fresh money, the fund manager is creating an illusion that their performance is better. The fact is he/she is not finding any opportunities to buy. On the other hand, the index can't think like that. It has to buy if there is inflow coming in. So what's the solution -- you, the DIY investor, has to learn to watch the tap i.e. open it when valuations are cheap and close it when they are high! The fund manager is also doing the same -- and so should you. But don't let the numbers trick you Likewise, another alternative strategy (which is what I mostly use) is to invest directly in smallcap stocks. I have explained that rationale in another video and even my newsletter is about small & microcap stocks. The reasoning for me is simple -- I want to build a portfolio fo 10-baggers. And here's the strange part - there are many stocks in my portfolio which will remain a small cap (or microcap) even after becoming a 10-bagger. Every one of us is not the same. I will go with smallcap stocks, you might go with actively managed smallcap funds and I know many who simply regulate the inlet and outlet of the smallcap 250 index fund. Hope this helps.

[@nabeelnm7183]

All thing u said above is correct only but i disagree in one thing that over 15-20 years small cap fails to beat large cap . from 2009 jan to 15 feb 2024, returns of BSE Sensex and BSE small cap is BSE SENSEX 1109% BSE SMALLCAP 1157%. yes there is no large difference , but this difference when compounded over time can give high returns(at volatility cost as u said). As India being in developing phase , i think its achievable

[@privacyowl]

@@nabeelnm7183 the compounded returns for BSE Sensex is 17.4% (based on the 1109% absolute returns you mentioned) where as for BSE Smallcap is 17.7% hardly any difference.

[@gautamsinha5998]

I do invest in smallcap 250 index but not via the fund house shown in this video. There is however one logic i find very concocted in which the P/E of 250 smallcap index is being compared with active fund smallcap P/E for valuation, active fund will choose performing cos. so its pe will be higher, in index the lesser performing cos. will bring the index pe down..... Anyways statistical mumbo jumbo is part and parcel of selling mechanisms. Anyway Shankar Nathji, please let us know the pe and performance of another popular smallcap 50 fund which outperformed and how it fares against the 250 smallcap index

[@shankarnath]

You have a good point. Active small cap PE shouldn't be compared to index PE. On Smallcap50, pls pull the needed information from valueresearchonline. You can use any scheme which is on Smallcap 50 and VRO will show the PE ratio

[@amymargesonia9228]

The question here is how much difference in the pe ratio would be acceptable and fruitful enough for us to buy an active fund as against an index fund.

[@dr.riteshchhabra3611]

First time seeing U doing a sponsored video but it is fine as it is clearly mentioned in the description..It would be better if also mentioned in the video itself though...

[@shankarnath]

Thanks for the suggestion. Curious to know - if I had not written it in the description and the "Includes promotion" tag had not come in the start of the video - would you have found it difficult to understand that this was a sponsorship when viewing the video?

[@amymargesonia9228]

Yes

[@namanagarwal4024]

Is there a small cap etf that you are using instead?

[@shankarnath]

Not using a smallcap ETF currently

[@user-sv8pu5zr5c]

hdfcsml250 etf

[@BK-oz3ml]

Any feedback on HDFC smallcap ETF?

[@shubhamgupta8326]

Sir i already invested through sip in sbi small cap to isme lrna sahi hoga ?plz reply.🙏🙌

[@srikanthr781]

Shankar sir ,I feel you hav explained all these concepts in previous videos.. It's mix of Hindi and English which I didn't understand much. You have excellent narration skills.You could have taken the knowledge and provided narration by yourself 😢

[@shankarnath]

My apologies and thank you for the suggestion

[@wasimkhan6288]

expense ratio?

[@shankarnath]

The NFO period has just ended. I guess the expense ratio will get revealed sometime this month

[@speedster4459]

Personally, I think small cap index investment is extremely risky. Active funds are far far better to invest in than index fund. Factor based index funds, nifty fifty funds are the best index funds.

[@onilfernandes465]

Will sbi small cap index be a good choice?

[@shankarnath]

Please evaluated different offerings on platforms like Groww, ET Money, Valueresearchonline etc. before inferring. Also, small cap indices are of different types - Small Cap 250, Small Cap 50 and Small Cap 100

[@onilfernandes465]

@@shankarnath sir do you provide any one on one session or do you provide portfolio management services? My mother has retired and i feel I lack the understanding of market

[@allen1nash2]

The tracking error will be a major concern in this with the increase of the AUM

[@saketlal8348]

This video should have compared the performance of index returns vs major active small cap funds. I wish Shankar sir shares that in his future video. I am sure he wont like us to invest in products that are offering lower return than what is already available in the market.

[@shankarnath]

That exercise is for you to do before investing. Content is static so always use updated information available in platforms like Groww, ET Money or VRO to compare, sort and select

[@amymargesonia9228]

​@@shankarnathWe were hoping u would do that work for us.

[@shankarnath]

@@amymargesonia9228 I might pick it up at some point in the future. The queue's a bit long though .. I receive over 100 suggestions & work requests every week and unfortunately, very few want to learn :(

[@privacyowl]

I would suggest doing a 10 year rolling return comparison of Smallcap index vs. Nifty 50 instead of point to point. The Smallcap index might barely outperform the Nifty 50 then.

[@shankarnath]

Thanks for the suggestion

[@amymargesonia9228]

Pl somebody explain what's a rolling return comparison.

[@privacyowl]

@@amymargesonia9228 point to point returns is basically measuring return between one day and another. For example if you know the NIFTY value on 1 Jan 2014 and 31 Dec 2023, you can calculate the 10 year return. Rolling returns is basically an average of 100s of point to point returns over many fixed time periods. Basically a 10 year rolling return can be a average of point to point returns of say 1 Jan 2014 to 31 Dec 2023, 2 Jan 2014 to 1 Jan 2024, 3 Jan 2014 to 2 Jan 2024, etc. (basically you calculate 100s of such point to point returns and then average it out)

[@abhisektripathy92]

@shankar , there is a critical issuw with small cap index investing. Tracking error due to lack of volumes . Individually we can buy n sell easily. But at institution level, i am not sure how buy sell spread will be kept minimum. That is the biggest risk in my opinion. Please share your thoughts

[@shankarnath]

I don't have an opinion here as I don't give massive weightage to tracking errors. Tracking errors will always be there. Even in actively managed fund, there are days between when the fund management team identifies an opportunity and when the trading team puts in a buy order. I prefer to keep my investing broad and not mathematical .. it helps me more.

[@123rubyg]

Small cap 250 PE is 27.95 , expensive

[@karthikshan7936]

Its true tat small cap company performs well ot moves to mid cap so whats the point in choosing small cap index, on the other hand badly performing midcap falls into small cap index

[@sameertawde5]

MF Amt Invested No of Years SIP 10 lacsLumpsum amt invested Pension withdraw @ 6% p.a. Asset Allocator 30.60 lacs 17 Years 15000 20 years 30 Years Flexi Cap 25.20 lacs 14 years 15000 14 years Small Cap 23.4 lacs 13 Years 15000 13 Years

[@kitten_with_bad_breath]

Are bhai kehna kya chahte ho?

[@blr543]

Not convinced ....Nifty 50 value 20 gives best returns with less risk.......

[@shankarnath]

Very interesting. Curious to know -- what are the indicators you use to convince oneself that large cap value stocks (Nifty 50 Value 20) will do better than small cap growth stocks (Nifty Smallcap 250) in the future, say over the next 5 years?

[@Barathwaj-pz3mg]

This index was interesting, but on downside, re balanced anually, but in my opinion the rebalancing to be in line with Nifty 50 TRI since the base factor of nifty 50 value 20 is the stock should be part of nigty 50.

[@AdminEverest]

This Pod Cast Could have better - Seems like Paid Podcast

[@klokesh5959]

Which is accurate, 18.9% CAGR or 15K SIP for 15 years? Because, thanks to finfluencers, we know that 15K SIP for 15 years at 15% CAGR gives 1 Crore.

[@shankarnath]

Not clear. Can you rephrase the question?

[@klokesh5959]

@@shankarnath in the video, 18.9% CAGR was mentioned. But while considering example, she mentioned 15.2K SIP for 15 years will result in 1 crore corpus. As per 15-15-15 rule, it is 15% CAGR which gives 1 crore, right? But with 18.9% CAGR, it should be pretty much more.

[@shankarnath]

@@klokesh5959 Thanks, I'm really not sure how this came about. If I find something, I'll circle back.

[@Magicofmathpk]

Hindi bolte to hum samajh sakte the sir😅

[@Alooman-lw5pk]

Higher expense ratio

[@ajayarora3582]

Ram Ram ji

[@ashishanand4mech]

It is already over valued!! What's the point?

[@shankarnath]

Can you share the data points you are using to infer that Nifty Small Cap 250 is overvalued?

[@ashishanand4mech]

It's well above 1, 2,3,5y average. And PE of 27.5 (not 25) isn't cheap