NFO analysis- PGIM India Small Cap Fund

Small-cap companies are defined as companies that rank below 250 on the basis of market capitalisation. Small-cap mutual funds invest in these companies of India, which have lower market capitalisation. These types of funds are volatile and risky in nature; however, in turn, deliver great returns.  

Last year, small-cap funds have exceptionally outperformed and delivered returns near about 100 per cent. These funds tend to outperform during bull markets and underperform during bear markets. Investors should consider investing in these funds during bear markets in order to receive optimal returns. Small-cap companies have the ability to scale up and also, got the potential to become either mid-cap or large-cap companies.   

As per the historical trend, the performance of small-cap funds is cyclical in nature. Outperformance doesn’t continue for a longer period of time before it once again starts underperforming. In the year 2014, small-cap funds outperformed whereas, in the year 2015 & 2016, these funds underperformed. Similarly, these funds outperformed in the year 2017 and underperformed in the years 2018 & 2019. So, as in the year 2020-2021, these funds have already outperformed now, they are more likely to underperform in the upcoming years. PGIM India Mutual Fund has come up with the NFO of the small-cap fund. Let’s look have a look at the same:  

Subscription dates:  Launch date- July 9, 2021; end date- July 23, 2021. 

Objective: It is an open-ended equity scheme investing in equity and equity-related instruments of small-cap companies. The fund has given no guarantee of returns but the investment objective will be achieved. It will invest a minimum of 65 per cent of its corpus in small-cap companies and diversify across various sectors. The fund manager may invest some of its corpora in debt and money-market instruments.  

Strategy: The strategy of the fund manager is to acquire opportunities available in the small-cap segment. Fund managers would attempt to build a diversified portfolio of small-cap companies across various sectors. There are many small-cap companies as compared to mid-cap and large-cap companies. Fund managers will build a portfolio by utilising a combination of top-down & bottom-up portfolio construction processes, focussing on the fundamentals of each stock and quality of management.  

Fund manager: This fund will be together managed by Mr Aniruddha Naha-Senior Fund Manager-Equity, Mr Kumaresh Ramakrishanan-CIO-Fixed Income, and Mr Ravi Adukia-Equity Analyst & dedicated Fund Manager for Overseas Investment.  

To conclude, small-cap funds have already out-performed; so, it might be risky to invest in this fund as it’s likely to underperform in the coming years. Anyway, if investors want to invest in small-cap funds, then investing in NFO is not the best option as they are not offering anything new or something topical. Investors should consider investing in well-established funds as historical data is available in order to get an idea about the returns of particular fund houses whereas, there is no data available in the case of NFO.