Mid-, small-cap investments save funds

Mutual fund schemes investing in small- and mid-cap companies have been relatively less affected in a market where most mutual fund schemes have given negative return, since the market went into a bearish mode following the subprime turmoil in the US.

The Bombay Stock Exchange's Sensex fell close to 10.9 per cent by Friday from a record high of 15,868.85 points on July 24. In the same period, the BSE mid cap index fell 9.4 per cent and the BSE small cap index slid 7.9 per cent.

Mutual fund schemes that typically invest more than 60 per cent of their portfolio in small- and mid-cap companies have been less affected by the downturn as compared to other schemes. Most mutual fund schemes have given negative returns of up to 12 per cent but these schemes have given maximum return in the market downturn. 
 

BIG CAN BE DICEY
Scheme name	NAV (Rs)		%Return
	17 Aug	24 July
JM Emerging Leaders	12.83	12.79	-0.75
JM Small and Midcap regular	10.80	11.30	-1.83
Kotak MNC	28.98	30.90	-2.45
Birla Sunlife Buy India	27.38	29.81	-2.70
Birla Midcap	75.71	80.78	-2.91
UTI MNC	36.36	38.63	-3.04
Source: Value Research

"Our key holdings have done very well in the fall. We have bottom fished continuously. We feel that midcaps have done better in the current correction than the large caps. They will do well in the next 3 to 6 months," said Sandip Sabharwal, chief investment officer, JM Mutual Fund. JM Emerging Leaders has more than 70 per cent exposure to small and mid-cap companies.

Reversing last year's trend, the return from the 30-stock index was only 2.6 per cent, compared to 7.8 per cent return for mid-caps and 11.6 per cent for small-caps. Most foreign funds have preferred to invest in liquid stocks so far, making exit easier, said analysts.

In fact, after the Sensex reached 14,000 levels, midcap stocks started participating in the rally, said Subhash Bagaria, research associate-mutual funds, Angel Broking.

"UTI MNC has benefitted during the downturn since it has exposure to low beta stocks. Thus, downside during a market fall is limited for such stocks. The scheme has exposure to engineering, consumer goods and MNC pharmaceutical stocks and has been largely benefitted by management buybacks happening in the consumer goods and FMCG space," said Swati Kulkarni, fund manager, UTI Mutual Fund. The scheme has significant exposure to mid and small cap companies.

Domestic funds raised more than Rs 160 billion this year through 26 new equity schemes, according to Association of Mutual Funds in India. Bulk of this money was to be invested in mid-cap and small cap stocks.

Fund schemes like HDFC Midcap Opportunities Fund, DSPML Micro Cap and others specifically targeting the midcap and small cap (and even the micro cap companies) were launched in the first six months of the year.