Mutual Funds

Sundaram Equity Fund NFO: Another multi-cap fund on the block

Nalinakanthi V | Updated on August 25, 2019 Published on August 25, 2019

The scheme suits investors with a high risk appetite

Indian equities have been on a slippery path over the past couple of months. While the market volatility has left many small-time investors unnerved, experts seem undeterred by the ups and downs, and believe it’s the time to go shopping for good stocks that are available cheap. This is evident from the slew of new fund offers (NFOs) launched over the past couple of months. The latest one to join the fray is Sundaram Equity Fund. The NFO will be open for investment till August 30 and will re-open for continuous subscription beginning September 16.

As per the fund’s mandate, it does not have any theme and hence shall invest in stocks across sectors, without any sector or industry bias. In terms of market capitalisation, the scheme has the flexibility to invest in stocks across large-, mid- and small-cap curves. At any given point, it will invest at least 65 per cent of its assets in equities and the balance in debt/money market instruments.

Besides investing in Indian equities, the fund’s mandate allows it to capitalise on opportunities outside India by either investing directly in the shares of stocks listed in other global markets or through American or global depository receipts.

Being a multi-cap fund, its performance shall be benchmarked to the S&P BSE 500 Index. The scheme will only suit investors with a high risk appetite, given that it will invest in mid- and small-cap stocks, which are typically more volatile than their large-cap counterparts.

As a theme, the biggest positive with a multi-cap fund is its agility to shift allocation across market capitalisation. For instance, when the going gets tough, these funds can load up on relatively less volatile large-caps to contain the downside. Similarly, once the recovery is in sight, they can add mid- and small-cap stocks that can deliver more during recovery rallies.

About 58 open-ended multi-cap funds are currently open for subscription.

How have multi-caps fared?

Over the past year, the equity market has been on a downward spiral. While large-cap stocks have managed to withstand the fall, small- and mid-cap stocks have been on a falling spree. On an average, these multi-cap funds have shed about 7 per cent. While this is higher than what the S&P BSE Sensex shed — about 3 per cent — during the same period, it is still better than the nearly 10 per cent slide in the S&P BSE 500 Index.

Likewise, over three- and five-year periods, multi-cap funds have delivered 6.4 per cent and 8.8 per cent, respectively. This is higher than the 6.3 per cent and 7 per cent gains, respectively, by the S&P BSE 500 Index. The S&P BSE Sensex Index gained about 9.7 per cent and 7.1 per cent, respectively, over the same period.

While multi-cap funds have, on an average, delivered better than the S&P BSE 500 Index, they haven’t been able to better large-caps. The primary reason for the underperformance is the sharp slide over the past year which has eaten into their long-term performance. Interestingly, over three- and five-year periods, the best fund in the category delivered 14 per cent and 16 per cent, respectively.

While multi-caps may be a good vehicle for long-term wealth creation, volatility over the short to medium term can risk the overall return performance. Only investors who have the wherewithal for relatively high risk should consider investing in multi-cap funds.

The writer is an independent financial consultant

Published on August 25, 2019
  1. Comments will be moderated by The Hindu Business Line editorial team.
  2. Comments that are abusive, personal, incendiary or irrelevant cannot be published.
  3. Please write complete sentences. Do not type comments in all capital letters, or in all lower case letters, or using abbreviated text. (example: u cannot substitute for you, d is not 'the', n is not 'and').
  4. We may remove hyperlinks within comments.
  5. Please use a genuine email ID and provide your name, to avoid rejection.