Shortly on the heels of completing its New Fund Offer (NFO) of BNP Paribas Consumption Fund, BNP Paribas Asset Management India has filed papers with SEBI for a small cap fund. The filing also comes in a year in which small-cap companies have struggled and marks a contrarian stance.
The small-cap category on average has only returned 3.9% over the past year compared to 13.53% for large-cap funds. Several fund houses (asset management companies or AMCs) have also potentially spotted an opportunity in the troubled market. Tata Mutual Fund filed for a small-cap fund in early August and the iconic DSP Blackrock Small Cap Fund reopened to subscriptions.
As per SEBI rules, the fund will invest 65-100% of its assets in below the top 250 largest companies measured by market cap. It can invest the balance 0-35% in larger companies or in debt. The fund will be benchmarked to the Nifty Smallcap 100 Index. The Index has 1-year returns of -4.92% but 5-year returns of 22.99%.
Reasons to invest
Out of India’s roughly 5,000 listed companies, 4,750 or 95% are small-cap companies. This gives investors access to a vast investment universe. Such companies are also likely to be the mid and large-cap companies of tomorrow.
Size is a major factor in small-cap investing. Many older funds such as DSP Small Cap Fund have reached sizes of Rs 4,000 – 5,000 crore which makes it difficult for them to invest in small cap companies. This is because there is very little liquidity in small caps. On the other hand, newer funds tend to be small and nimble and may take better advantage of many small companies.
BNP Paribas AMC has a reasonably good track record with some of its established funds. Investing through the fund house brings with it the comfort of an established track record of operations in the MF space.
Karthikraj Lakshmanan and Abhijeet Dey will be the co-managers of the fund. They jointly manage BNP Paribas Large Cap Fund, BNP Paribas Midcap Fund, BNP Paribas Multicap Fund, BNP Paribas Focused 25 Equity Fund, BNP Paribas Long Term Equity Fund and BNP Paribas Conservative Hybrid Fund (Equity).
The fund will have the growth and dividend options. The minimum investment amount is set at Rs 5,000.