NFO review: IDBI Small Cap Fund

IDBI Mutual Fund has launched an open-ended smallcap mutual fund scheme. The New Fund Offer (NFO) is open for subscription between June 1 and June 15. The scheme will re-open for continuous sale and re-purchase on June 29.

According to the scheme information document (SID), the scheme would invest a minimum of 65 per cent in equity and equity-related instruments of smallcap companies. The fund manager would invest the remaining 35 per cent in stocks of companies other than smallcap companies or debt instruments at his discretion. The scheme would be managed by V Balasubramanian, Head-Equities, IDBI Asset Managemnt Company.

The new scheme is coming at a time when most investment experts believe the smallcap sector is extremely overvalued. In fact, the smallcap segment also saw a minor correction recently. However, Balasubramanian feels that there are lot of opportunities in the smallcap space even now. “We see opportunity for growth revival in six to nine months,” says Balasubramanian.

The scheme would charge an exit load of one per cent if the units are redeemed within 12 months from the date of allotment.

Should you invest?
Smallcap funds are meant for investors with a higher risk appetite and a time horizon of at least seven to 10 years. Smallcap funds have outperformed other equity fund categories in the last one year with a huge margin. They have returned 36.58 per cent in the last one year. However, one should not forget that higher returns are always associated with higher risk.

“Investors should avoid investing a lumpsum in smallcap sector as it is over-valued. They should invest only via SIPs or STPs,” says Abhishek Gupta, founder, Moat Wealth Advisors. “There is no point in investing in an NFO when you have similar funds in the market with a performance record to track,” says Gupta.