HSBC Mutual Fund has put a cap of Rs 700 crore on the fund size of its new scheme - Midcap Equity Fund - which was launched today.Sanjay Prakash, chief executive officer of HSBC MF, said the idea of putting a cap on the fund size was implemented after getting the nod from Sebi."The cap is at Rs 700 crore for now," Prakash said, adding "we would take a re-look at the cap at a later point. The actual fund size could vary between Rs 500-1,000 crore at any point of time." Elaborating on the need to place a cap on the fund size, Prakash said it would facilitate fund performance, risk management and "unlock value for the investor."The rationale for the move is that the scheme is benchmarked against the CNX Midcap 200 index that has a market cap of Rs 1,51,000 crore as on March 31, 2005. The fund house has estimated that out of this, only around 50% (Rs 75,000 crore) is free float. If the fund size was of the order of Rs 2,000 crore, it would mean it could end up potentially owning nearly 3% in each company in the index. If the fund has 5% stake in any stock, it would mean an exposure of Rs 100 crore.Prakash said the idea was to avoid such anomalies and create an unwieldy situation. He added that the response from distributors has also been encouraging.The asset management company (AMC) has reserved the right to close the public offering earlier than the closing date of May 3, 2005 with due notice to distributors and investors. "Any amount in excess of the Rs 700 crore (received during the notice period) would be retained by the fund with investors getting allotments. The scheme will open for subscriptions after the IPO only if the fund size falls substantially below Rs 700 crore or after 30 days from the date of closing," Prakash said. The mid-cap scheme is looking at investing in stocks with a maximum market cap of Rs 1,440 crore. "No single holding will exceed 10% of the portfolio and all holdings above 5% cannot exceed 40% of the portfolio. Further, at the point of investment, no single holding can exceed 7.5%," Prakash said.
