Kotak Small Cap Fund: Proven Process, Seamless Transition and Stellar Performance

The Kotak Small Cap Fund has been a strong performer in the small-cap segment, consistently generating wealth for its investors. Despite a temporary dip, the fund has made a notable recovery over the past six months, re-establishing itself as a top choice for small-cap investors. Over the past two years, the fund lagged behind its peers, largely due to its lower exposure to public sector undertakings (PSUs), banks, and fertilizer sector stocks, which saw significant gains. However, the fund’s core investment philosophy has remained steadfast, adhering to its “growth at a reasonable price” approach, with a continued emphasis on quality and growth. Even with the recent fund management change, this guiding strategy remains unchanged.

New Fund Manager, Same Winning Formula

When Harish Bihani took over as the fund manager in October 2023, investors might have been concerned about a potential shift in strategy. However, the seamless transition under Bihani, who brings over 16 years of experience from ICICI and SBI Mutual Funds, reassured investors. Despite this change, the fund's disciplined stock-selection process has remained intact. The fund continues to focus on companies with strong promoters, solid fundamentals, and scalable operations, ensuring it stays true to its proven strategy.

Categorizing Small Caps: A Strategic Approach

Harish Bihani groups small-cap companies into three key categories:

1. Quality Compounders – These are the stars of the portfolio. Companies with strong business models, excellent management, and a clear growth path. These businesses are expected to deliver consistent profit growth over the next few years, making them core holdings.


2. Normalcy Candidates – These companies face temporary setbacks but have strong balance sheets and are poised for a comeback. The fund is positioned to benefit as these companies recover.


3. Wealth Destroyers – Companies with weak financials, poor management, and unsustainable business models. Even if they show short-term promise, these are avoided to protect the fund from future losses.

Impressive Performance Across Short & Long term

The performance numbers further reinforce the fund's strong track record. As of August 31, 2024, the Kotak Small Cap Fund delivered a remarkable 26.99% return over the past six months, surpassing its benchmark, the Nifty Smallcap 250, which returned 21.84%. The fund's long-term performance is equally impressive, with a 10-year CAGR return of 20.86% versus the benchmark's 17.89%, consistently outperforming over both periods.

Conclusion: A Fund for Long-Term Growth

The Kotak Small Cap Fund remains an excellent option for investors looking to tap into the long-term growth potential of small-cap companies. Despite the fund management change, the fund’s core investment philosophy remains intact, and recent performance improvements validate the effectiveness of its time-tested strategy. By focusing on high-quality small-cap companies, the fund is well-positioned to continue delivering strong returns.

For investors who believe in India’s growth story and are ready to embrace the risks of small-cap investing, this fund offers an exciting opportunity to build wealth. Like planting a sapling and watching it grow into a tree, investing in small caps requires patience—but the rewards can be substantial.

In short, the Kotak Small Cap fund continues to be a reliable choice for long-term wealth creation. The fund management transition hasn’t hindered performance, and the fund's time-tested investment process remains strong, offering a steady focus on delivering superior returns.