NFO: Principal Small Cap Fund

May 3, 2019 . FundsIndia Desk

This is about an interesting new fund offer – Principal Small Cap Fund, an equity mutual fund that invests in smallcap stocks.

While we’re usually wary with NFOs, we believe that this NFO is an attractive opportunity at this time. It can be a small addition to your existing portfolio and can help deliver a boost to your returns.

Why smallcaps and why the timing is good?

  • The Nifty SmallCap 100 fell close to 30% in the 2018 correction.
  • The market correction has resulted in several good smallcap stocks available at reasonable valuations.
  • Following a corrective phase, smallcaps usually rally stronger than other market segments, given enough time.
  • Smallcaps offer exposure to sectors and opportunities that aren’t covered by the largecap universe. The largecap space is usually dominated by banks.

Why Principal Small Cap?

  • Since the fund is new, it would not have to first focus on recouping losses due to last year’s bear market. To this extent, the fund can find it easier than existing smallcap funds to participate fully in a smallcap uptick.
  • It can hold cash and find it easier to deploy this over the coming months and catch stocks at attractive prices.
  • Timing-wise, this NFO offers a good entry point into space without the baggage of a portfolio. This has to be rejigged due to the bear market, which other smallcap funds have to deal with.
  • Smallcap investing by nature requires deft stock-picking skills – the smallcap segment is purely stock-specific and not driven by sector or macro trends. The NFO’s fund manager follows a similar strategy in his other funds and has the ability to do it well.

About the Fund:

  • Principal Small Cap aims at holding a relatively diversified portfolio, capping individual stock exposure at 5%.
  • It will follow a stock-specific buy and hold strategy; it will look at around a 2-3 year growth period when picking stocks. It will follow a growth-at-reasonable-price approach.

Who should invest

  • Risk: Need to have a very high-risk appetite
  • Holding Duration: Minimum 4-5 years timeframe
  • Strategy: Invest in a lump sum and follow up with 6-12 month SIPs
  • NFO Closing Date: 6th May

Do note that your portfolio needs to have a larger share of moderate risk largecap or multicap funds before you invest in a smallcap fund.



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