Mutual Funds

Your Fund Portfolio

Parvatha Vardhini C | Updated on January 15, 2018

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I have been investing ₹2,500 a month in Canara Robeco Emerging Equities over the last two years. I wish to invest for another 15 years.

Recently, I received a mail from Canara Robeco Mutual Fund stating that Canara Robeco Emerging Equities fund has altered its fundamental attributes to ‘Mid Cap Equity and Equity related instruments’ from ‘Mid Cap and Small Cap Equity and Equity related instruments’ earlier.

The change in the fundamental attribute is effective from March 16, 2017. Please advise whether I should stay invested or switch or redeem the investment.

Vijayalakshmi

Intermittent volatility notwithstanding, the markets have been in a bull phase since late 2013. The change of government at the Centre, policy reforms initiated since then and high growth expectations from the economy have predominantly been the reason behind the up-move.

Small- and mid-cap stocks have gained much more than large caps in the period. Mutual funds focused on small- and mid-cap stocks have also seen high inflows in the last three years.

The total corpus of all mid- and small-cap schemes (growth option) that were existing as of February 2014 for instance has today grown over three-fold to around ₹89,990 crore. Canara Robeco Emerging Equities is no exception.

From a corpus of ₹38 crore in February 2014, the fund has grown to an asset base of ₹1,514 crore as at end-February 2017.

But today, valuations, especially in the small-cap space, have inched up sharply. While the BSE Sensex trades at a trailing price to earnings ratio of 22.9 times, the BSE MidCap and BSE SmallCap indices trade at 30.7 times and 65.9 times respectively.

Rising valuations and burgeoning size have prompted funds such as DSPBR Microcap (corpus of ₹5,107 crore now vs ₹364 crore three years ago) to restrict new subscriptions since February 20, 2017.

Besides, as a fund size increases, the lower float/liquidity in small-cap stocks sometimes becomes an impediment to buying/selling the desired number of stocks at a desired price.

Mirae Asset Emerging Bluechip, a fund which again invests in mid- and small-cap stocks has suspended fresh lumpsum inflows since October 2016 too.

Hence, you need not panic about the decision of Canara Robeco Mutual Fund to alter the fundamental attributes of the Emerging Equities fund from a mid- and small cap stock focus to a mid-cap focus.

Over the near term to medium term, a cut in small cap exposures could mean that the fund may be able to contain losses better, if there are major corrections in the prices of small-cap stocks.

Over the longer term also, taking the spotlight away from small caps brings down the risk quotient of the fund.

However, since you have a horizon of 15 years, keep tabs on its performance every two years or so.

As of now, the fund is among the top quartile performers in its category over 1,3, and 5 year periods. SIP returns (growth option) in the last two years (assuming you began investing in March 2015) work out to around 20 per cent. This is on par with the returns of seasoned funds such as Franklin Smaller Companies and HDFC Mid-cap Opportunities.

You can also add other diversified equity funds ( ie large-cap funds, multi-cap funds) to your portfolio as your surplus increases, if you have not yet invested in any other fund outside of Canara Robeco Emerging Equities.

Send your queries to mf@thehindu.co.in

Published on March 19, 2017

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