L&T Emerging Businesses Fund

A 2 year close-ended equity oriented mutual fund scheme which will invest at least 50% of its portfolio in stocks of small cap companies.

Summary

Type	A 2 year close-ended diversified equity fund	Benchmark Index	S&P BSE Small Cap Index
Min. Investment (lump sum):	Rs 5,000 and in multiples of Re 1 thereafter	Additional purchase:	Rs 1,000 and in multiples of Re 1 thereafter
Face Value	Rs 10 per unit	Expense Ratio:	Upto 2.50%*
Entry Load	Nil	Exit Load:	Nil during NFO 1% if the units purchased post conversion into an open-ended equity scheme are redeemed within 1 year from the date of allotment
Issue Opens	April 22, 2014	Issue Closes:	May 06, 2014

*Direct Plan shall have a lower expense ratio to the extent of distribution expenses / commissions which is charged in the non-direct Plan

Investment Objective*

The investment objective of the scheme is to generate long-term capital appreciation from a diversified portfolio of predominantly equity and equity related securities, including equity derivatives, in the Indian markets with key theme focus being emerging companies (small cap stocks). The Scheme could also additionally invest in Foreign Securities.

Emerging companies are businesses which are typically in the early stage of development and have the potential to grow their revenues and profits at a higher rate as compared to broader market.

There is no assurance that the objective of the Scheme will be realised and the Scheme does not assure or guarantee any returns.

*Source: Scheme Information Document

Is this fund for you?

L&T Emerging Businesses Fund (LTEBF) is a 2 year close-ended equity oriented mutual fund scheme which will invest at least 50% of its portfolio in stocks of small cap companies which are defined as stocks beyond top 200 in terms of market capitalisation as per the National Stock Exchange (NSE) or the Bombay Stock Exchange. It is noteworthy that the market capitalisation segment is applicable at the time of investment, but LTEBF may continue to hold onto the stock even subsequently when it becomes large cap / mid cap, depending upon the views of the fund manager or the relativeness attractiveness of the stock in the portfolio, but subject to ensuring that exposure to small cap stocks is brought back to the minimum allocation stated in the asset allocation pattern within the rebalancing period.

Also LTEBF may also invest in derivative instruments for the purpose of hedging, portfolio balancing and return optimisation.

You see, small cap stocks have a potential to generate super-normal returns. Smaller companies tend to grow faster than mid and large sized companies. But since they are placed at the lower end of market capitalisation, they are prone to low volume and less liquidity. Thus given this trait, LTEBF is likely to command very high risk. Therefore before investing one's hard earned money, it is imperative to take into account his / her risk appetite and risk tolerance. Also amid times where the Indian equity market recently clocked an all-time high, portfolio construction could be challenging task, especially in the small and mid cap domain where they have run-up rather far in comparison to large caps. This therefore has reduced the margin of safety in the small and mid cap domain at present.

Portfolio & Investment Strategy

While building its portfolio, LTEBF would follow an active investment style using the bottom-up approach to stock picking. The fund will primarily hold a diversified equity portfolio sectors and stocks. Adhering to its mandate of investing in emerging businesses, LTEBF will invest at least 50% of the portfolio in small cap stocks to generate long term capital appreciation. The fund has defined small cap stocks as those which are beyond top 200 companies based on the market capitalisation as per the National Stock Exchange (NSE) or the Bombay Stock Exchange. The market capitalisation will be applicable at the time of investment, but LTEBF may continue to hold onto the stock even subsequently it becomes large cap / mid cap, depending upon the views of the fund manager or the relativeness attractiveness of the stock in the portfolio, further subject to ensuring that exposure to small cap stocks is brought back to the minimum allocation stated in the asset allocation pattern within the rebalancing period.

While building the stock portfolio, the fund manager will favour companies which have the following:
 

• Best value relative to their respective long-term growth prospects;
• Return on capital; and
• Quality management
   

Moreover, LTEBF may also invest in derivative instruments for the purpose of hedging, portfolio balancing and return optimisation.

The asset allocation which will be followed by the fund will be as under:

Instruments	Allocation Range (%)		Risk Profile (Low / Medium / High)
	Minimum	Maximum
Equity and equity related securities of small cap companies	50	100	High
Equity and equity related securities* (including Indian and foreign equity securities as permitted by SEBI/RBI^)	0	35	High
Debt Instruments, Money Market Instruments	0	35	Low to Medium

*Including derivatives upto 25% of the net assets of the Scheme
^The scheme may invest in Foreign Securities upto 10% of its net assets subject to eligible investment amount. Investments in Foreign Securities shall be subject to the investment restrictions specified by SEBI/RBI from time to time.
(Source: Scheme Information Document)

LTEBF will benchmark its performance to the S&P BSE Small Cap Index. This is the appropriate index to benchmark this scheme since it tracks the performance of companies with relatively smaller capitalisation.

Fund Manager Profile

LTEBF will be managed by Mr S.N. Lahiri, Mr Rajesh Pherwani and Mr Abhijeet Dakshikar (for foreign securities).

Mr Lahiri is the Head of equities at L&T Mutual Fund and has 21 years of experience predominantly in equity markets. Prior to joining L&T Mutual Fund in September 2012, Mr Lahiri was the Head of equities at Canara Robeco Asset Management Company Ltd. and prior to that as well, has worked with several broking companies and a mutual fund house in top capacity such as Chief Investment Officer (CIO) and Head of Equities. He has to his credit a Bachelor's degree in Mechanical Engineering [B.E. (Mechanical)] and a Post Graduate Diploma in Management (PDGM) from IIM Bangalore. At present, Mr Lahiri is also a fund manager for L&T Midcap Fund, L&T Equity Fund, L&T Tax Advantage Fund, L&T India Special Situations Fund, L&T Infrastructure Fund, L&T India Prudence Fund (for equity portion) and L&T India Equity and Gold Fund (for equity portion).

Mr Pherwani is the head of research at L&T Mutual Fund and hold 16 years of experience in equity research and treasury. Prior to joining L&T Mutual Fund in November 2012, Mr Pherwani was with HDFC Mutual Fund as a Senior Equity Analyst and prior to that with HDFC Ltd as a manager in treasury department of the company. Mr Pherwani has to his credit a Bachelor's degree in Electronics Engineering [B.E. (Electronics)], a Master degree in Management Studies (M.M.S.) in Finance and is a CFA charter holder. At present, Mr Pherwani is also a fund manager for L&T Tax Saver Fund and L&T Long Term Advantage Fund - I.

Mr Dakshikar is a Senior Analyst at L&T Mutual Fund and is the fund manager for foreign securities. He holds 10 years of experience in research and fund management. Prior joining L&T Mutual Fund in June 2012, Mr Dakshikar has worked with Mirae Asset Global Investment Management as a Fund Manager and prior to that with RBS Equities Ltd. and Man Financial Securities Ltd. as a research analyst. He too holds a Bachelor's Degree in Mechanical Engineering [B.E. (Mechanical)] and a Master degree in Management Studies (M.M.S.) in Finance. Mr Dakshikar also manages overseas investments for L&T Equity Fund, L&T India Special Situations Fund, L&T India Large Cap Fund, L&T India Value Fund, L&T Indo Asia Fund, L&T Global Real Assets Fund, L&T India Prudence Fund and L&T India Equity and Gold Fund.

Fund Outlook

With a dominant portion of the fund's asset being invested in small and mid cap companies, the fortune of the fund will be linked with the stocks in the small and mid cap domain. With small and mid caps having run-up ahead of large caps, margin of safety for portfolio construction seems reduced (although valuations in small and mid cap domain seem less stretched as compared to large caps). Small and mid caps can be more vulnerable in case of events panning out other than what the markets expect. Thus given this, LTEBF is likely to command very high risk.

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