The Hindu Business Line : Sundaram MF plans small-cap fund

SUNDARAM Mutual Fund has warmed up to the idea of investing in small-cap counters, courtesy a scheme that will try to achieve capital appreciation by chiefly allocating to stocks that can be categorised as `small-cap.' It has sent the draft offer document for Sundaram Select Small-Cap to SEBI for clearance.

Up to 100 per cent of the scheme's assets may be allocated to equities, while equity futures and options may take up a maximum 25 per cent. Not more than 25 per cent will be put in cash and money market instruments. It may also invest in select IPOs with no limit on market capitalisation.

Sundaram Select Small-Cap will be the first of its kind in the MF sector, noted Mr T.P. Raman, Managing Director, adding that a number of small-cap scrips have displayed major growth potential in recent times. "This will be a high-risk, high-reward fund, one that will take aggressive bets," he said. The S&P CNX Midcap 200 index has been chosen as its benchmark.

The fund, however, may occasionally have to grapple with a paucity of volumes - a key issue for many small-cap stocks. "Yes, liquidity may turn out to be a problem. However, our research suggests that we will have a big pool of promising small-cap names to choose from," Mr Raman observed.

The MF, in the absence of a standard definition, has labelled `small-cap' as a "stock of a company with a market capitalisation between Rs 50 crore and Rs 1,000 crore at the time of the first (and not an additional or subsequent) investment by the scheme." Normally, around 95 per cent of the assets will be put in at least 25 stocks, the offer document has mentioned. It will target a set of companies, embracing a manly bottom-up approach and occasionally a top-down approach.