ALTHOUGH broad markets indices have been range bound for months, the small- and mid-cap companies are in demand on the bourses. No wonder then that small-cap oriented funds are in the lime light. Reliance Mutual Fund is entering this space with the new fund offer of Reliance Small Cap Fund (RSCF), an open-ended equity mutual fund scheme. The product will compete with numerous schemes that specialise investing into small and mid cap stocks.
Investment Objective
The primary investment objective of the scheme is to generate long term capital appreciation investing predominantly in equity and equity related instruments of small cap companies and the secondary objective is to generate consistent returns by investing in debt and money market securities.
The scheme will invest 65-100% of its assets in small-cap companies including derivative exposure to such companies. Small-cap stocks for the purpose of the fund, are stocks whose market capitalisation is in between the highest and lowest market capitalisation of companies on BSE Small Cap Index.
Up to 35% of the money can be invested in equities and related instruments issued by non-small cap companies. The fund manager has the option to invest up to 35% of the assets in fixed income and money market securities.
Investment Strategy
RSCF aims to build and maintain a diversified portfolio of equity stocks that have the potential to grow at higher rate. Buying into companies with high growth potential at attractive price and selling them later, if the valuations appear stretched as the stock prices rise, will reward the shareholders in the long term.
Risk-Reward
The fund's focus on small-cap companies entails high risk along with the potential for high returns. Though the fund manager can shift to larger-cap companies, most of the assets for most of the time will be invested in the small companies and in case of bearish markets the fund may see high volatility.
Small companies offer super normal growth in good times but most of them cannot withstand the tough times. Stock market factors in this tendency in the stock prices quickly and the NAV of the funds that invest in such companies accordingly fluctuate. In case of small companies, given the limited availability of information the fund manager's skill to enter into and exit from an investment matters. Investors with high risk appetite can look at this product for superior returns.
Fund
RSCF will be managed by Sunil Singhania. The fund has chosen BSE Small Cap index as the benchmark of the fund. The fund offers growth and dividend option. Dividend option has got both payout and reinvestment facility. You need at least Rs 5000 to invest in this fund. There is no entry load. But if you check out from the scheme before completing 12 months you will lose 2% towards exit load. If you opt to move out of the scheme after 12 months but before 24 months, you will lose 1% towards exit load.
Why Go For It:
To earn superior returns from the high growth potential of small companies.
What Is The Catch:
The fund is a high risk offering and may not capture the opportunities in non-small cap space.
