NFO Analysis: IDFC Emerging Businesses Fund
Almost after a decade, IDFC Asset Management Company (AMC) has launched its equity mutual fund. The last equity MF (IDFC Infrastructure Fund) was launched in the year 2011. However, looking at the price correction in the small-cap space along with its attractive valuations, IDFC has launched IDFC Emerging Businesses Fund, which is an open-ended equity scheme that would be predominantly investing in the small-cap stocks. The scheme is open for subscription up to February 17, 2020. It will re-open for ongoing subscription and redemption within five business days from the date of allotment of units.
Objective
The objective of this fund is to seek opportunities for long-term capital appreciation by predominantly investing in equity and equity-related securities from the small-cap space. However, there is no assurance or guarantee that the objective of the fund will be realised at any point of time.
Asset Allocation
|
Instruments
|
Allocations (per cent of total assets)
|
Risk Profile
|
|
Minimum
|
Maximum
|
High / Medium / Low
|
|
Equity and equity related instruments of Small-Cap
Companies
|
65
|
100
|
Medium to High
|
|
Equity and equity related instruments of other
Companies
|
0
|
35
|
Medium to High
|
|
Debt Securities and Money Market Instruments (including Government securities, Securitised debt and Cash and Cash equivalents)
|
0
|
35
|
Low to Medium
|
|
Units issued by REITs and InvITs.
|
0
|
10
|
Medium to High
|
Benchmark
The performance of the scheme will be benchmarked against S&P BSE 250 Small-Cap TRI (Total Return Index). In the small-cap MF space, most of the schemes are benchmarked against Nifty Small-cap TRI and S&P BSE Small-cap TRI. There are only two schemes out of 22, which have the same benchmark index as IDFC Emerging Businesses Fund. So, they would be the true peers. The trailing returns over five years of Nifty Small-cap TRI is 2.76 per cent, that of S&P BSE Small-cap TRI is 5.59 per cent and of S&P BSE 250 Small-cap TRI is 3.55 per cent. The category average 5-year trailing return stands at 7.58 per cent.
Investment Strategy
The fund would seek to capture the opportunities that are available in the small-cap space. The fund would invest a minimum of 65 per cent of its assets in the small-cap companies. Depending on the market conditions, the fund manager would take a call on where to invest the remaining portion.
They are said to invest in cyclical stocks and also seek opportunities to invest in Initial Public Offerings (IPOs). They are also adopting buy and hold strategy rather than actively managing the portfolio. The stock would form a part of the portfolio if it is generating enough cash, has superior return on capital, has ability to repay the debt and has medium-term growth visibility.
Fund Manager
This scheme would be managed by Anoop Bhaskar. He has an experience of over 29 years in the mutual fund industry. Previous to joining IDFC AMC, he was the head of equity with UTI AMC. Following are the funds of IDFC AMC that are managed or co-managed by Anoop Bhaskar:
|
Fund
|
1-Year (%)
|
3-Year (%)
|
5-Year (%)
|
|
IDFC Core Equity Fund
|
7.66
|
7.53
|
7.70
|
|
IDFC Multi-Cap Fund
|
12.38
|
8.57
|
6.76
|
|
IDFC Hybrid Equity Fund
|
6.20
|
4.38
|
N/A
|
|
IDFC Sterling Value Fund
|
1.34
|
6.21
|
5.73
|
Our Recommendation
Indeed, the fund manager comes with a rich experience in managing equity mutual funds. However, we always believe that you should avoid participating in the NFO, as it usually takes time to deploy the funds. We also believe that you should invest in a fund which has at least been through two market cycles. Before investing in any fund, you should check if it suits you in terms of your risk and returns profile. For someone being who believes that he needs a small-cap fund for achieving long-term (10 plus years) financial goals, then there are other funds in the same category with a longer history to analyse and choose from. So, it is better to avoid investing in such fund unless we have any data points.