Without a doubt, the easiest place for any investor is mutual funds. When unsure of which stock to buy, investors turn to mutual funds for direction. Even in this circumstance, a person is aware of the potential risks and when we talk about risks, penny stocks are unavoidably brought up. Therefore, the performance of the mutual funds that invest in penny stocks will be covered in this article.
Let’s first understand a little bit about penny stocks, though.
Penny stocks are unpopular equities that are traded at very cheap prices. These under-researched stocks have the potential for very significant returns provided their fundamentals are sound. The threshold below which stock is referred to as a penny stock is undefined, but as per general rule, such an amount is below Rs. 20 for most people.
Mutual Funds which have Penny Stocks
|Mutual Fund||Penny Stock|
|HDFC Flexi Cap Fund||Hindustan Construction Co. Ltd.|
|DSP Equity Savings||Vodafone Idea|
|SBI Large and Midcap Fund||Gayatri Bio Organics|
|HDFC Capital Builder Value||Sadbhav Infrastructure Ltd|
|HDFC Infrastructure Fund||MEP Infrastructure Developers|
We will now go over each of these funds individually.
1. HDFC Flexi Cap Fund
The HDFC Flexi Cap Fund has 0.23% of its funds invested in Hindustan Construction Co. Ltd. The stock currently trades at around Rs. 18 and has a market capitalization of 27.23 Billion, and is in the Construction and Infrastructure Sector.
The actual scheme has done well over the previous few years. The fund’s 1-year return of 14.68% was significantly higher than that of its benchmark NIFTY 500, which had a 3.5% return. The fund provided annualised returns of 20.57% for SIP investors for the same time and received a CRISIL rating of 5 stars. The fund holds 7.1% of large-cap securities, 4.4% of mid-cap securities, and 4.9% of small-cap securities, respectively. Despite its extreme volatility, this plan has proven successful.
2. DSP Equity Savings
This scheme has invested 0.02% of its funds in Vodafone Idea. This telecom services stock currently trades at around Rs. 6 and has a market capitalization of 205 Billion.
This DSP fund has a NAV of Rs. 18.39, and an AUM of Rs. 539 Crores. The AUM size of this fund is small and it can make this fund a little volatile. Looking at the returns of the scheme for a 1-year period which were 4.91%, the scheme performed only slightly above its benchmark of NIFTY 50 with 4.19%. The annualized SIP returns for the same period were 7.57%. In comparison to other funds in the same category, the scheme has less of Large cap holdings (46%) and more of Small Cap holdings at 3.48% making the fund moderately risky and perfect for such risk bearers.
3. SBI Large and Midcap Fund
Less than 0.01% of SBI Large and Midcap Fund’s funds have been allocated to Gayatri Bio Organics. The company, which belongs to the dyes and pigments sector, is valued at Rs. 0.74 billion and trades at about Rs. 9.
This SBI scheme has an AUM of Rs. 9077.27 Crores and a NAV of Rs. 388.2. The benchmark for the product, the NIFTY 50, generated returns of 4.19%, but this fund performed marginally better with 1-year returns of 5.37%. The annualized returns are 10.42% for investments made in the SIP format over the same time period. It is a balanced scheme with good diversification because the scheme invests roughly 90% of its money in equity, of which 35% is in large-cap businesses and 26% is in mid-cap companies. In addition to this, the fund has 1.7% invested in foreign equities for international exposure. The plan is slightly less risky than its counterparts due to its consistent standard deviation.
4. HDFC Capital Builder Value
0.01% of the money in the HDFC Capital Builder scheme are allocated to Sadbhav Infrastructure Ltd. This penny stock has a market capitalization of 2.21 billion and trades at about Rs. 5.35. The business is in the engineering, design, and building industries.
Looking at the scheme specifically, it only has a CRISIL rating of 2 stars and has been underperforming the benchmark NIFTY 50 TRI, which has been at 3.5% over the past year and the fund itself has been at just 2.76%. The scheme can be considered riskier than other schemes since 12% of its investments are made in small-cap stocks. The scheme’s standard deviation also shows how great the risk is, making it a good fit for investors who are willing to take on a lot of risks.
5. HDFC Infrastructure Fund Growth
0.32% of the fund is allocated to MEP Infrastructure Developers Ltd. The business operates toll bridges and has a market value of $2.8 billion. Currently, the price of this stock is about Rs. 15.
The fund currently only has an AUM of Rs. 637 Crores and a NAV of Rs. 23.76. Despite its modest size where most funds are expected to perform less than their benchmark, this fund had an impressive 1-year return of 14.2% compared to its benchmark S&P BSE Infrastructure Index’s 9.34%. On the other hand, the SIP Annualized returns paint an even better picture with a 24% return for the 1-year period. The investment of 0.32% is a bit high in comparison to its peers, making this fund riskier, which is also demonstrated by the stock’s standard deviation, which is 24.38 when the industry average is 19.26.
Observing the funds talked about above, we can clearly conclude that mutual funds keep a very small part of their overall funds reserved for penny stocks. While some funds don’t even invest in one. This is done to maintain the level of safety and fewer risks that mutual funds typically offer to their investors, hence these funds invest less in these equities.
Penny stocks have undoubtedly been more popular recently since people have now started to notice the huge returns they can give despite the high risks they can bear. The mutual funds which include Penny Stocks in their portfolios invest a very small part of their funds in such stocks an it hardly ever reaches even 1%.