Invesco Mutual Fund has launched a New Fund Offer (NFO) for Invesco India Small Cap Fund. The NFO opened on 10th October and will run till 24th October. The fund will be an open ended fund and will reopen for continuous purchase by October 29th, 2018. The launch comes at a time when small cap funds are down 12%, with most of the fall coming in the past 3 months. Those looking to make a contrarian entry into the small cap category may find this to be useful fund, as we write below.
What’s on offer
The new fund will invest 65-100% of its assets in small cap companies. These are companies with a market cap below the market cap of India’s largest 250 companies. The fund will invest the balance 0-35% in larger companies or debt. The fund will offer the growth and dividend options. The minimum application amount is Rs 5,000 for lump sum purchases and Rs 500 for monthly SIPs.
Invesco Mutual Fund, a fund management company headquartered in Atlanta, Georgia (USA), first entered India in 2012 by acquiring a stake in Religare AMC. The joint venture was called Religare Invesco. In 2016, it acquired Religare’s remaining stake in the joint venture and the fund house was renamed ‘Invesco Mutual Fund.’ The AMC has built a steady track record and created some strong outperformers in the form of Invesco India Contra Fund and Invesco India Growth Fund. Taher Badshah who is the Chief Investment Officer (CIO) for Equities at Invesco AMC and also manages Invesco India Contra Fund along with Amit Ganatra, will be the fund manager of Invesco India Small Cap Fund.
The 4,750 of India’s 5,000 odd listed companies fall in the small cap category, about 95% of all listed companies. Many of these companies are well-established and high-performing with market caps extending almost up to Rs 10,000 crore. Yet there are only 15 small cap funds investing in them from amongst India’s roughly 40 odd asset management companies (AMCs).The category has a 5-year average CAGR of 23.25% and a 10-year CAGR of 18.45%, demonstrating a history of creating wealth.
Conventional wisdom dictates that investors should go for small cap funds with established track-records. Although this is sound advice, many of these established funds have huge AUMs that stops them from entering truly small sized companies. Funds like Reliance Small Cap Fund, Franklin India Smaller Companies Fund and L&T Emerging Businesses Fund have AUMs of Rs 5,000-Rs 7,000 crore. DSP Small Cap Fund and HDFC Small Cap have AUMs just shy of Rs 5,000 crore. Some of these funds like DSP Small Cap, had to stop inflows on occasion in order to function properly, becoming victims of their own success.
A new fund such as Invesco India Small Cap Fund allows you to enter small caps through a small nimble vehicle, managed by a reputed fund house. Invesco has worked quietly and patiently on its funds after the split with Religare in 2016. We spoke to Amit Ganatra, fund manager of Invesco India Contra Fund in June of this year and got a first-hand account of how the AMC delivers this outperformance. You can read it here. If you are looking at small cap and are willing to accept the volatility they bring, Invesco India Small Cap Fund may be a good way to approach them.