Sundaram Select Micro Cap-Series-I

A five year close-ended equity mutual scheme from the stable of Sundaram Mutual Fund, which will focus on investing predominantly in stocks in the micro cap domain.

Summary

Type	A five year close-ended equity scheme	Benchmark Index	S&P BSE Small-cap Index
Min. Investment:	lump sum -> Rs 5,000 and in multiples of Re 1 thereafter Note: The option to invest vide the Systematic Investment Plan (SIP) is not available since it is a close-ended scheme
Face Value	Rs 10 per unit	Options available:	Growth and Dividend Payout
Entry Load	Nil	Exit Load:	Not applicable until conversion / maturity date However, since the scheme is a close-ended one and thus will be listed on the recognised stock exchange, investors would have the bear the transaction costs plus taxes as applicable for transacting on the secondary market.
Issue Opens	December 16, 2013	Issue Closes:	December 30, 2013

 

Investment Objective*

The investment objective of the scheme is "to seek capital appreciation by investing predominantly in equity/equity-related instruments of companies that can be termed as micro-caps.

A company whose market capitalisation is equal to or lower than that of the 301st stock by market cap on the NSE at the time of investment will be considered to be in micro-cap category."

*Source: Scheme Information Document

 

Is this fund for you?

Sundaram Select Micro Cap-Series-I (SSMC-Series-I) is a five year close-ended equity mutual scheme from the stable of Sundaram Mutual Fund, which will focus on investing predominantly in stocks in the micro cap (also known as small cap) domain.

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 under-owned and as result of which, volumes and liquidity are generally low. Thus given this trait, SSMC-Series-I is likely to be quite volatile and therefore would 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.

 

Portfolio & Investment Strategy

SSMC-Series-I while building its portfolio would adopt a bottom-up approach to stock picking and shall pursue a strategy which tries to capture emerging stocks through its study of industry and management. As conferred in its name, SSMC-Series-I would focus on investing in a diversified portfolio of micro cap stocks and since there is no fixed thumb rule as what constitutes to be a micro cap stock, the fund has fixed its universe using the threshold of stocks with a market cap equal to or lower than that of the 301st stock by market cap on the National Stock Exchange (NSE).
 

While focusing on investing in micro caps, the fund will emphasise on investing in companies with:
 

• Quality management;
• Unique business strengths;
• Sustainable long-term growth prospects; and
• Reasonable valuations
   

And as a part of the analysis, the fund will focus on the following amongst host of other aspects:
 

• Past performance;
• Future prospects of the company and its business;
• Financial health;
• Competitive edge;
• Managerial quality & practices;
• Minority shareholder's interests; and
• Transparency
   

In selecting particular companies for investment, emphasis will be laid on the growth potential for the company as well as the sector to which the company belongs. Also, value investing will be done, if the equity markets and industrial activity necessitate such a decision as long as stocks in this category do not appear to be a value trap. So given that, the fund would follow a blend style of investing.

As far as portfolio turnover is concerned, given the nature of the scheme and its market capitalisation bias of investing in micro cap companies, SSMC-Series-I may see a high portfolio turnover.

Under normal circumstances the asset allocation pattern of SSMC-Series-I will be as under:

 

Instruments	Allocation Range (%)		Risk Profile High/Medium/Low
	Minimum	Maximum
Equity and equity related securities of companies of micro-caps	65	100	High
Other Equity	0	35	High
Fixed Income and money market instruments	0	35	Low to Medium

(Source: Scheme Information Document)  

Moreover, the fund may also use derivatives for such purposes as permitted by the regulations, including for the purpose of hedging, portfolio rebalancing and trading, based on the opportunities available and subject to the guidelines issued by SEBI from time to time.

 

Fund Manager Profile

The fund's investments will be managed by Mr S. Krishnakumar who has over 15 years of total experience. Before joining Sundaram Mutual Fund as a fund manager in December 2003, Mr Krishnakumar was associated with Anush Shares & Securities for seven years (as a Vice President-Research) and before that with Lucas TVS for six years.

He has to credit, and engineering degree from the Regional Engineering College (now National Institute of Technology), Trichy and is an MBA from Loyola Institute of Business Administration, Chennai. At Sundaram Mutual Fund he also manages Sundaram Select Midcap Fund and Sundaram S.M.I.L.E. Fund. He also co-manages Sundaram Capex Opportunities Fund, Sundaram Energy Opportunities Fund and Sundaram Equity Multiplier Fund.

 

Fund Outlook

SSMC-Series-I proclivity to the small cap index along would attract very high volatility and therefore command very high risk of investing. Also there are possibilities that the fund may encounter low volume and low liquidity in some stocks in the portfolio, even though it follows a bottom-up approach to stock picking and has enunciated the investment strategy it would follow. Thus the fortune of SSMC-Series-I would be closely linked with the performance of the small cap index. Moreover as mentioned earlier, given the nature of the scheme and its market capitalisation bias of investing in small cap companies, SSMC-Series-I would see a high portfolio turnover which may consequently result in higher brokerage and transaction costs.

 

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