Sundaram Select Micro Cap Series 1

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Micro-cap, or small-cap, stocks are something every investor should have some exposure to in her equity portfolio

It is a five-year closed ended equity scheme from Sundaram Asset Management Company that aims to invest in companies that can be termed as micro-caps. The scheme offer document states a company whose market capitalisation is equal to or lower than that of the 301st stock by market cap on the NSE at the time of investment will be considered to be in micro-cap category

 

NFO PERIOD: December 16 to December 30.

ASSET ALLOCATION & BENCHMARK:

 

Sundaram Select Micro Cap Series 1 (SSMCS1) scheme aims to deploy 65-100 per cent of its corpus in micro-caps' equities, 0-35 per cent in equities of companies other than micro-caps and 0-35 per cent in fixed income and money market securities. The performance benchmark for the scheme is S&P BSE Small Cap Index.

EXPENSE RATIO & LOAD:

 

The scheme will levy an annual recurring expense ratio that across various cat egories of expenses can add up to 3.12 per cent.

No exit load is applicable as SSMCS1 is a closedended scheme.

There are two primary issues concerning this new scheme closed-end offering. First is its nature, which means your investment will be tied up in micro caps for the entire five-year tenure of the scheme. Alternative exit via listing on stock exchanges is there but there is no trading in the units of almost all listed closed-end mutual fund schemes. A five-year time horizon for micro-cap investments is not bad as it gives enough time for well-managed small-cap listed companies to realise their true potential.

 

The only risk an investor runs is that at the exact time of maturity the small-cap universe may be at price level lower than that during the tenure of the scheme. What makes it a bit more uncertain is that SSMCS1 is giving itself the freedom to switch entire 100 per cent to non micro-cap stocks in the past six months of the scheme's tenure. This is in order to ensure liquidity at the time of redemption.

 

The second aspect is the micro-cap nature of the scheme. Micro-cap, or small-cap, stocks are something every investor should have some exposure to in her equity portfolio. If an investor does not already have such an exposure she can consider SSMCS1. But given the fact that the scheme may invest only 65 per cent of its corpus in micro-cap stocks the purpose of acquiring a micro-cap exposure through this scheme may not be achieved. There are existing open-end small-cap schemes an investor can opt for. But the future is unpredictable for all such schemes -old or new.

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