NFO Insight: Can Abakkus Small Cap Fund’s MEETS framework safeguard portfolios amid volatile market?

Sunil Singhania’s Abakkus Mutual Fund has launched its second equity NFO Abakkus Small Cap Fund, which is open for subscription and will close on March 12.

Abakkus Small Cap Fund aims at delivering long-term capital appreciation by investing in a diversified portfolio of small cap companies in India. The fund comes at a time when small-cap equities are offering potentially attractive entry valuations and structural growth opportunities, according to a release by the fund house.

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What fund house says on launch of small cap fund:

Sunil Singhania, Founder: As a young mutual fund house, we are committed to offering a bouquet of investment products that brings wealth creation opportunities to Indian investors with varied risk appetite. Abakkus Small Cap Fund reflects our commitment to offering solutions that capture structural growth investment opportunities in undiscovered and under-researched areas with a strict risk-reward portfolio management.

Vaiibhavv Chugh, CEO: After receiving a strong reception for our maiden flexi cap fund, the objective was to bring an investment fund which may have the potential to provide better risk adjusted returns from a long term perspective.

In line with this direction, we bring Abakkus Small Cap Fund for investors to make prudent investments into industries which are majorly available in the small cap category and currently valued with improved risk–reward levels. Our fund will not only be focused with notable allocation to high conviction ideas but also being mindful of concentration risk.

Sanjay Doshi, Head of Investments and Research: Following the recent correction and heightened regulatory focus on liquidity and risk disclosures, we believe the market is transitioning from momentum-driven participation to fundamentals-led stock selection. Guided by Abakkus Investment Philosophy, our unique Investment ‘MEETS’ framework, deep research and a well-defined risk management process, we look forward to partner with investors in their disciplined approach in small cap investing.

What experts say about the fund

Experts typically ask investors to avoid investing in NFOs unless they offer something unique. The uniqueness could be that the scheme is offering an investment option that is not available in the market or offering something extra to an existing option. Otherwise, the experts believe investors are better off with an existing scheme with a long performance record. This is because you have some historical data to base your investment decision. You don’t have any data when it comes to new offerings.

Manish Kothari, CEO and Co-Founder, ZFunds shared with ETMutualFunds that being a small cap fund it will focus on identifying opportunities early in their growth journey, with scalable models, strong management quality and reasonable valuations and it has a structured risk framework addressing company, market, valuation, liquidity, and concentration risks.

Kothari further said that research plays a key role in the strategy, especially since only a limited number of companies in the NIFTY Smallcap 250 TRI have delivered more than 15% CAGR over the past eight years, making careful stock selection essential.

Another expert, Akshat Garg, Head - Research & Product, Choice Wealth told ETMutualFunds that this fund zeroes in on bottom-up picks—companies with ironclad balance sheets, earnings you can actually bank on, and buys at prices that aren't nosebleed levels—instead of just surfing the small-cap index hype and it hunts in under-researched corners where the market's sleeping on true potential, all while dodging benchmark handcuffs and keeping positions tight to tame the chaos.

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Investment framework and process of this flexi cap fund

The fund house highlights that all funds of Abakkus Mutual Fund will follow an in-house investment framework viz. ‘MEETS’, to evaluate key drivers of long-term value creation. The MEETS framework focuses on Management pedigree and track record, Earnings quality and the ability of companies to multiply profits, Events/Trends that affect or disrupt operations, Timing of investment at reasonable pricing and Structural aspects like size of the opportunity and competitive positioning.

The fund’s investment process will comprise five ‘Ds’. It begins with the ‘Discovery’ of opportunities from a universe of nearly 1,500 stocks, followed by ‘Delving’ into companies using the MEETS framework. The team then ‘Develops’ a comprehensive micro and macro-level view based on competitive advantages and peer analysis, before ‘Detailing’ the investment thesis and portfolio fit. Finally, it ‘Delivers’ a thoughtfully constructed portfolio backed by disciplined execution.

Process to identify small cap winners

Garg said that they sift through about 1,500 stocks with their MEETS checklist—management's real track record, earnings that hold water, business game-changers, entry prices that make sense, and big structural boosts like exploding market sizes.

“It's this methodical grind of discovery, deep-dive, thesis-craft, smart sizing, and final delivery, leaning hard into scalable founders in fresh playgrounds rather than the crowd's darlings. Endgame? A tight portfolio of businesses you'd happily hold for the ages,” Garg further said.

To this Kothari said, Abakkus Asset Manager follows a structured and detailed research process to identify potential small-cap winners and they begin by screening a broad universe of nearly 6,000 companies and narrow it down to around 1,500 investable ideas.

From there, they evaluate each company’s fundamentals, management quality, earnings visibility, and potential growth triggers and the shortlisted companies then undergo deeper analysis, including competitive assessment, detailed financial modelling, and direct interactions with management, to ensure only high-conviction opportunities are selected, Kothari further said.

MEETS framework historical performance

With this small cap fund following MEETS framework and the flexi cap fund also following this method, Sagar Shinde, VP Research at Fisdom shared with ETMutualFunds the MEETS framework has demonstrated strong effectiveness across Abakkus’ PMS and AIF strategies, with their portfolios consistently generating meaningful alpha over benchmarks and maintaining resilience across market cycles.

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Portfolio construct

The potential key areas of exposure of this small cap fund includes sunrise sectors, export beneficiaries, value plays with potential for growth revival, and special situations.

The fund will allocate 65-100% in equity and equity related instruments of small cap companies, 0-35% in equity and equity related instruments of companies other than small cap, 0-35% in debt securities (including securitised debt & debt derivatives) and money market instruments, and 0-10% in units issued by InvITs.

Should one go for small cap funds now?

The fund house said for investors with a long-term horizon, the current phase may present a potential opportunity to accumulate quality small-cap businesses at more reasonable valuations.

Kothari said that small caps tend to be more volatile and require a long-term horizon and even with higher standard deviation, the long‑term CAGR of Small Caps shows a supportive risk‑reward outlook.

“The preferred strategy is SIP or staggered investing, keeping small caps as a satellite allocation (around 10–15% of equity) rather than the core, and committing only with a 7–10 year horizon,” Kothari said.

While commenting on whether one should prefer small cap funds now, Garg said yes—if you're tough enough for the gut punches, since small caps stay wild and even after the reset, 30-50% drops are still in play and here's the straight logic: the froth's drained out (tons of names 40% off highs), but India's growth machine keeps elevating top small and mid-caps through sharper earnings firepower over time.

Play it smart by treating them as just 10-15% of your equity mix—a spicy satellite, not the whole meal—dripping in via SIPs or STPs to smooth the edges, no big lump-sum gambles and chase managers who live and breathe balance sheets and risk fences, not just last cycle's trophy returns, he further said.

Around 24 small cap funds have completed three years of existence. Out of these 24 funds, Bandhan Small Cap Fund gave the highest return of 29.73%, followed by ITI Small Cap Fund which gave 24.59%. Tata Small Cap Fund gave the lowest return of 13.36%.

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Garg said look 6-18 months out and it's rough seas—more culls as the market sifts gold from gravel, juiced by regulator watches and mood swings but stretch to 5-10 years, and it's a different story: rock-steady upside as small-cap earnings lap large caps in this ever-widening economy and the smart money stays cool on staggered buys, measured bets, and long-haul grit, nabbing India's next scalable legends without the hype-cycle scars

Kothari said near-term volatility may persist, but long-term prospects remain attractive as small companies benefit from economic growth and formalisation and returns, however, will be uneven and manager-dependent, making discipline and patience critical.

There are strong growth opportunities in emerging sectors such as EMS, e-commerce, semiconductors, AI, and travel and tourism, where small-cap companies have a significant presence and over the long term, historical trends also show a steady improvement in the core business fundamentals of the small-cap sector, Kothari said.

One should always consider their risk appetite, investment horizon and goals before making any investment decision.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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