The SEBI categorisation and reclassification has opened up space in some AMCs to launch new schemes. BOI AXA Mutual Fund has filed papers with SEBI for launching BOI AXA Small Cap Fund. The open-ended scheme will predominantly invest in small cap stocks. When launched, the fund will join about a dozen small-cap funds already in the market managing about Rs 36,000 crore. Small-cap funds are a big draw for investors, given the tremendously attractive returns delivered historically. This development comes at a time when many small cap funds, of late, have reopened schemes for investments after limiting inflows previously.
Fund construct – The open ended equity scheme will focus on small cap investing. Small caps are defined as the 251st company onwards in terms of full market capitalization. So, minimum investment in equity & equity related instruments of small cap companies would be 65% of total assets. The rest 35% may be in equity & equity related instruments of companies other than small caps, debt and money market instruments, units issued by REITs and InvITs.
Investment strategy – The BOI AXA Small Cap Fund will focus on small cap companies that the fund manager believes have sustainable business models and potential for capital appreciation. The scheme would follow an actively managed approach, allowing it the flexibility to pursue opportunities without having any bias in favour of sectoral allocations.
The investment environment, valuation parameters and other investment criteria will determine the allocation and the investment style in BOI AXA Small Cap Fund. Under normal market conditions and depending on the fund manager’s views, the assets of the scheme would be invested across stocks that represent a broad range of sectors of the economy, in order to ensure adequate portfolio diversification.
The fund manager would follow a top down approach to shortlist stocks for portfolio construction. He would look at the global and Indian economy and the domestic policy environment and stock valuations. This would help in the identification of themes which have a potential to outperform.
For asset allocation, the fund manager would take the help of qualitative framework of MVPS (Macro, Valuation, Policy and Sentiment). Sentiment would be gauged from factors like the positive/ negative breadth of the market, inflows/outflows into equity mutual funds and FII buying/selling figures.
Fund benchmark – The NIFTY Smallcap 100 Index. It is designed to reflect the behaviour and performance of the small-cap segment of the financial market. The NIFTY Smallcap 100 Index comprises of 100 tradable, exchange-listed companies.
Fund manager – Alok Singh will manage BOI AXA Small Cap Fund. He has a wealth of experience and an impressive track record in fund management both for the resident as well as overseas investors. Has previously worked in BNP Paribas Asset Management Pvt. Ltd. and Axis Bank Limited. He already manages BOI AXA Large & Mid Cap Equity Fund, BOI AXA Credit Risk Fund, BOI AXA Conservative Hybrid Fund, BOI AXA Mid & Small Cap Equity & Debt Fund and BOI AXA Manufacturing & Infrastructure Fund.
RupeeIQ outlook – Equity diversified funds witnessed robust growth in the last three years. AUM within each sub-category has risen substantially. In FY14-17, AUM of large-cap funds was up 99%, multi-cap funds AUM were up 106%, midcap funds AUM were up 86% and small-cap funds AUM rose 238% (CAGR). Over this period, while all sub-categories delivered strong performances, small-cap funds have done exceedingly well and outperformed. This reflects in the trend of broader indices outperforming bellwether indices in this time frame. However, large-cap funds have reversed that trend since January this year, and are now doing better than others. Small-cap funds are for investors with a horizon of 10 years or more. So, you need to be extremely patient with small-cap funds.