NEW DELHI: Asset management company (AMC) PGIM India Mutual Fundwill launch a new fund offer (NFO) for a small-cap scheme on Friday which will follow a mix of top-down and bottom-up investment approach. The fund will also have the option of investing in mid-cap, small-cap and overseas companies.
PGIM India small-cap fund NFO, closing on 23 July, will be managed by Aniruddha Naha for equity investments, Kumaresh Ramakrishnan for debt and money market investments, and Ravi Adukia for overseas investments.
“The fund will be 90-95% invested in small-caps. But there will be occasions where small-caps will become extremely expensive, and this is the biggest fear. At that point of time, we will probably reduce our positions in small-caps and then we would want to have the option of either investing into the domestic mid-caps and large-caps or overseas companies, which would be through our feeder funds. As of now we are not looking to invest into overseas funds,” said Naha.
Over the last one year, small-cap funds have been among the top performing schemes, delivering an average return of over 100%. Compared with this, large-cap and mid-cap funds have returned 48% and 74%, on an average, respectively.
According to the company, despite the recent surge in small-caps stocks, the space has been underperforming on a long-term basis, providing ample opportunities over the next three-five years basis.
While selecting companies, the asset management company will employ parameters such as positive operating cash flows, debt-to-equity ratio of less than three and clean corporate governance.
The fund will be benchmarked to Nifty Small Cap 100 total return index (TRI) and will allocate minimum 65% of its corpus to small cap stocks.
It will invest a 65-100% of its corpus in small-cap companies and may also seek to participate in the growth of other equity and equity related instruments. The scheme will also invest up to 35% in debt and money market instruments, including cash and cash equivalents, liquid and debt schemes of mutual fund as well as up to 10% in units issued by real estate investment trusts (REITs) and infrastructure investment trusts (InvITs).
The minimum investment in NFO is Rs5,000 and in the multiples of Re1, thereafter.
There will be nil exit load, if the units are redeemed or switched-out after 90 days from the date of allotment. About 10% of the units allotted may be redeemed or switched-out to debt schemes or PGIM India arbitrage fund without any exit load within 90 days from the date of allotment.
“We believe that listed entities in the small-cap segment are the biggest beneficiaries of developments such as significant recovery in corporate earnings, expected in the coming months coupled with multiple tailwinds like the government trying to boost manufacturing through PLI schemes, lower taxation, and various concessions. Idea is to help investors gain exposure to business segments like construction, textiles, real estate, chemicals and agrochemicals, Industrials, paper and the like that find limited representation in the large-cap space,” said Ajit Menon, CEO, PGIM India MF.
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