Mutual Funds
Handle small-cap funds with care at current levels

The market seems poised for a correction; small-cap stocks may not be a good bet

Reliance Mutual Fund has floated a new fund offer (NFO) called 'Reliance Small Cap Fund' which opens for subscription today. The NFO closes on 9 September 2010.

The scheme aims to generate long-term capital appreciation by investing in small cap companies. To generate steady returns the scheme will also invest in debt and money market instruments.

The fund carries 2% exit load if redeemed before one year and 1% if redeemed before two years. The fund will invest 65% of its corpus in equity and 35% in debt. The scheme will also invest up to 5% in pre-IPO placements.

The scheme will be benchmarked against the BSE Small-cap Index. It is being launched at a time when the market is bound for some correction and may hit
small-cap stocks hard. Small and mid-cap scrips tend to be more volatile than large-cap stocks. The BSE Sensex has climbed 85% from 9,424.24 to 17,464.81 during January 2009 to December 2009 while the BSE Small-cap index has advanced 150% from 3,339.05 to 8,357.62. However, the Sensex tumbled 45% from 17,648.71 in January 2008 to 9,647.31 in December 2008 while the BSE Small-cap index plunged 64% from 10,124.42 to 3,683.11 between the same period. Currently the S&P Nifty is trading at 5,477 while the BSE Sensex is trading at 18,226. Market watchers are predicting a correction in the short run.

"The valuations are stretched currently and markets have reached those levels where the margin of safety is very low on the valuations front. Therefore, we expect the market to correct. The valuations of small-cap stocks are stretched a lot compared to their peers," said Jintendra Panda, senior vice president & business associate, Motilal Oswal Financial Services Ltd. Currently there are 18 small- and mid-cap funds in the market.

Sundaram BNP Paribas Select Midcap Fund launched in July 2002 has been the top performer. The fund posted a 26% compounded annual growth rate (CAGR) return over the last five years while its benchmark climbed just 15%. The fund has equally performed well over one-year, three-year and five-year periods.

Birla Sun Life Mid Cap Fund (the second top-performing fund), launched in October 2002 has yielded 24% CAGR return over a five-year period while its benchmark CNX Midcap posted 20% return during the same period. The fund has outpaced its benchmark over one-year and three-year period too.

No prices for guessing the worst-performing fund. JM Mid Cap Fund has posted 12% CAGR over a five-year period while its benchmark CNX Midcap has gained 20%. The fund was launched in July 2004. The fund has fallen flat over one-year and three-year periods too. Similarly, JM Small & Mid-Cap Fund launched in May 2007 has given a net asset value (NAV) return of -16% while its benchmark CNX Midcap grew 17% during the same period.



Srikanth Matrubai

7 years ago

Asking a rival mf house (motilal) will definitely get you a negative reply.
No, Reliance Small cap fund looks good to me., especially when you are investing through sips.
The most notable thing about Small Caps is this, The BSE Small Cap fund has outperformed the Sensex and BSE Mid Cap by a wide margin of more than a huge huge 20% over a 6 year period. That sums up the issue. Yes, Small caps are volatile but they have the potential to become the next multibaggers if you spot the right one. Who better than the Reliance Star Fund Manager, Mr.Sunil Singhania to do this for you??

Although, Small Caps tend to be very volatile, they can give your portfolio a much needed 'alpha' adding to the overall returns. SIP Investment would be the BEST method to maximise your returns from this Fund.
visit my blog for more

Narendra Doshi

7 years ago

K Narayanan's comments is the FACT.
May be the prediction whether market will open up or down in the morning seems to be correct for at least 2-3 hours after the opening, if not by the end of the day, but the EXTENT of UP or DOWN may NOT BE CORRECT, at the end of the day.
Swim in the market as the tides exist. Be prepared for all eventualities. However, it is NOT necessary & beneficial to play / swim DAILY but as & when you think there is at least 5% change in your BUY/SELL target prices.

K Narayanan

7 years ago

Nobody knows the mkt.Your guess is as good as mine.Mkt pundits are churning out reports as they like as if they know everything happening tomorrw.Did anybody predict the level of fall in 2008.Again did anybody predict the tremendous rise in 2009/10.
Who knows the timing of FII and DFI entry and exit?Who knows the insiders/mgt's manipulations?We are living in informatiion explosion age.But as far stock mkt is concerned we don't get relevent information at the right time.So anybody can talk/write anything without any responsibility

Government rules out ban on iron ore exports

New Delhi: The Centre today rejected demand for ban on iron ore export, but said states need to take stringent steps to prevent illegal mining, reports PTI.

"Merely because state governments are not able to prevent and stop illegal mining, we should not ban export of iron ore," mines minister B K Handique said while replying to a debate on illegal mining in the Rajya Sabha.

The problem of illegal mining, which is growing in alarming proportion in Karnataka, Andhra Pradesh, Orissa and Jharkhand, is a problem of governance, he said.

"Rather banning export of iron ore, we need to see there is no illegal production of iron ore," the minister said, adding that the need of the hour is to tighten the regulatory system with adequate staff.

The minister also clarified that Karnataka, which is the second largest producer of iron ore in the country, has not banned export of iron ore.

"Karnataka has prohibited transportation of iron ore to ports and not export as such," he said.

Iron ore is a vital steel making raw material. India, the world's third largest iron ore exporter, produced 218 million tonnes of iron ore in 2009-10 fiscal and exported 128 million tonnes.

Participating in the debate, leader of the opposition Arun Jaitley said illegal mining is done by those who have legitimate permission for lawful mining. "On account of illegal mining there is large scale tax evasion," he said.

He suggested that mines should be allotted to those who are actual users. It is necessary to link the allotment of mines and minerals to the manufacturers rather than mere traders, he added.

Mr Jaitley further said the government must allow volumes to be mined that are required in the country and leave adequate resource for the future generations.

Pointing royalty and revenue to the state and central governments are dismal, he said, "There is a need to review and increase the volume of these taxes."

On demands from members to increase royalty on iron ore, Mr Handique said the rate of royalty is revised every three years and promised to have a relook at the matter.

Royalty rate on iron ore was revised to Rs125 per tonne in 2009 from Rs21 a tonne as a result state saw massive increase in royalty collection from Rs250 crore in 2008-09 to Rs4050 crore in 2009-10.

On nationalisation of mines to check illegal mining, the minister said there are practical difficulties to nationalise the country's mineral resources.

"Nationalisation itself cannot put an end to illegal mining. There are practical difficulties," he said.

On demands for CBI enquiry into illegal mining Orissa, he said the power for such probe rests with the state governments and "the Union government cannot unilaterally do it."

However, if the Orissa High Court gives instructions, the Centre is ready for it, he said, adding that the Centre has also set up a Commission of Enquiry to deal with cases related to illegal mining besides the Indian Bureau of Mines (IBM) is developing a technique of mapping of the mineral area.

Mr Handique expressed the hope that the Mines and Minerals Development and Regulation Act 2010 will tackle the problem of illegal mining and ensure holistic approach in grant of mineral licenses.




7 years ago

this is the issue regarding mines export no one have the othority to ban the export if you have the power to reduce the illegal mining....

RIL raises $1 billion loan from various banks

New Delhi: The country's most valued firm Reliance Industries (RIL) has raised a loan worth $1 billion (about Rs4,700 crore) from various banks, reports PTI.

According to market sources, Mukesh Ambani-led Reliance Industries has raised term loans worth $1 billion from as many as 31 banks.

However, it could not be ascertained for what purposes the loan would be utilised by the company.

When contacted, a Reliance Industries spokesperson declined to comment.

The banks that were involved in arranging the loan include Barclays Plc, Citigroup Inc, DBS Group Holdings and Standard Chartered Plc.


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