Historically, after every correction, small caps have bounced back harder than their mid cap and large cap counterparts. The recent correction thus offers an attractive investment opportunity, according to Principal Mutual Fund.
Principal MF is coming up with a small cap fund NFO, Principal Small Cap Fund (NFO period April 22, 2019 to May 06, 2019). The fund aims to identify companies having strong growth potential.
Sharing the rationale for launching a small cap scheme, the fund house said, “Small caps give investors exposure to emerging businesses and sectors where presence of large and mid-cap companies is limited. Moreover, as these stocks tend to be under-researched and under-owned there is huge upside potential if the investment rationale is achieved.”
According to Principal MF, small cap stocks offer investors exposure to a wider basket of sectors. Certain promising sectors like chemical, packaging, ceramics and sanitaryware, hotels, logistics, construction, sugar and tea can be better played through small cap stocks.
Of the 4750 small cap stocks, the fund house has shortlisted 200 stocks to be part of its small cap universe. The scheme will follow GARP (growth at reasonable valuation) strategy to select stocks for the portfolio. In addition, it will also include some tactical value picks to enhance portfolio returns.
To reduce risks in small cap investments, the fund house offers two risk mitigation options:
- STEP: Investors can split their investments in four equal instalments over four months. Investors opting for this facility will invest 25% of their investment in Principal Small Cap Fund while the rest will be held in Principal Cash Management Fund. In the succeeding three months, amount will be transferred from the liquid fund to small cap fund if the market corrects by 3% or on the last day of the month.
- Auto trigger: It is a profit booking option offered by the fund house. Investors need to specify a target return. Once the investment appreciates and reaches the specified amount, the investment is auto redeemed into another Principal Fund of the investor’s choice.
PVK Mohan, Head -Equity and Siddarth Mohta, Associate Fund Manager will manage the fund.
