Sundaram Mutual Fund has filed papers for small-cap funds in its Emerging Small Cap Series (VIII-X). The new funds will also be close-ended in continuation with other funds in the series. They will have a tenure of 3-5 years and will predominantly invest in small-cap stocks.
The S&P BSE 250 will be the benchmark for the scheme. It will feature the growth, dividend payout and dividend sweep options. K Krishnakumar and Dwijendra Srivastava who manage several other Sundaram small-cap funds will be the fund managers for this set of schemes as well. The minimum investment amount will be Rs 5,000.
The fund will be able to invest 65-100% of its assets in small cap companies and 0-35% in other types of companies or debt. Remember that there are roughly 5,000 listed companies in India out of which 4,750 are small-cap stocks. This opens up a vast universe which small, nimble funds can take advantage of.
How are the past schemes doing? Sundaram small cap close-ended funds, launched after 2015, have underperformed their benchmarks dramatically as the table below shows.
|Sundaram Select Smallcap Fund Series|
|Series||Launch Date||% Since inception (annualized)||% Benchmark||Outperformance?|
|Sundaram Select Microcap Fund Series|
|I||3rd Jan 2014||30.1||23.6||Yes|
|II||27th Jan 2014||30.4||25.2||Yes|
|III||17th Feb 2014||30.4||25.5||Yes|
|IV||11th March 2014||29.3||24.2||Yes|
|VI||1st October 2014||N/A||N/A||N/A|
|VII||31st October 2014||15||12.7||Yes|
|VIII||21st October 2015||14.7||14.7||N/A|
|IX||5th November 2015||14.9||16.6||No|
|X||7th December 2015||15.3||15.4||No|
|XI||28th December 2016||8.4||24.6||No|
|XII||8th February 2017||6.3||15.5||No|
|XIV||28th April 2017||1.3||7||No|
|XV||31st May 2017||1.2||9.4||No|
|XVI||30th August 2017||-5.4||5.1||No|
|XVII||13th October 2017||-9.8||1.6||No|
|Sundaram Emerging Smallcap Series|
|I||9th March 2018||-8.3||-3.9||No|
|II||9th April 2018||-5.8||-7.3||Yes|
|III||11th May 2018||-1.8||-6.7||Yes|
|IV||11th June 2018||-0.5||-2||Yes|
Source: Sundaram Mutual Fund, Data as of 31st July, 2018 (Latest available factsheet)
Should you invest?
Close-ended funds free the manager of redemption pressures and allow him to focus on generating returns. On the other hand, they have an arbitrary time horizon which may not correspond with market highs. For example, a market peaking in two years and falling in the third will not work for a small-cap fund with a 3-year time horizon – you simply won’t be able to exit at the peak. The recent performance of Sundaram small-cap funds of a close ended nature is also not encouraging.