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Only For Brave Hearts

It takes the brave to do something different and tread on the path less taken. And Principal Mutual Fund is one such brave fund house that has decided to swim against the tide. The AMC has launched the Principal Emerging Bluechip Fund that aims to invest in stocks of mid- and small-cap companies, and that too in a highly volatile market scenario where the mid- and small-caps are suffering the most.

Investment Strategy
The primary choice set for this fund will be limited to mid- and small-cap companies. While the investments in mid-caps can go as high as 95 per cent, small-cap investments will be limited to just 15 per cen. The fund has kept an avenue open to invest up to 30 per cent in stocks of any capitalization and up to 30 per cent in cash and money market instruments as well.

The mid-cap stocks will be defined as the stocks with market capitalization in the range of the market capitalization of the benchmark CNX Midcap Index, though the stocks selected may not be the constituent of the index. This range will be determined on a quarter-on-quarter basis. By going all out in the mid- and small-cap segments, the fund aims to exploit the high growth opportunities offered by these companies.

Fund Manager Performance
Mr. Pankaj Tibrewal will be the fund manager of this scheme. He is a commerce graduate and also holds a Masters Degree in Finance from Manchester University, U.K. He has five years of experience in managing funds and is currently responsible for managing five equity and hybrid funds of which Principal Personal Tax Saver, Principal Child Benefit and Principal MIP have an excellent track record and are ranked in the top quartile of their respective categories. Besides this, he has also managed a dozen FMPs in the last one year.

Similar Funds
Mid- and small-caps are considered to be the most volatile segments and the funds associated with these are known to be extremely volatile as well. There are currently 11 mid-cap funds available today and their average fall in the last six months has been 18.27 per cent (as on 15th September, 2008). Sundaram BNP Paribas Select Mid Cap was down by 13.60 per cent recording the lowest fall in the set and Magnum Mid Cap was in the last position, falling by 25.90 per cent.

AMC Performance
This is Principal Mutual Fund’s first new equity scheme of 2008. As of now, the AMC manages seven funds in the equity diversified category. The total asset under management by the fund in the equity diversified category is mere 13 per cent of its total asset under management (as in August 2008). It already has a large-cap oriented fund, Principal Large Cap Fund, which was down by 42 per cent and a small-cap oriented fund, Principal Junior Cap Fund, which was down by 50 per cent, in the same time span when the average fall of equity diversified category was 39 per cent.

Suitability & Recommendation:
Mid-cap and small-cap stocks are always considered a risky bet due to their higher than average volatility. When market turns upward, they are the ones which generate highest returns, but in the market downturn, they are the worst performers. From their peak in January 2008, CNX Mid Cap Index is down 45 per cent, the CNX Nifty Junior is down 50 per cent whereas BSE Sensex is just down by 33 per cent.

Mid-cap fund do not justify being the kernel of any equity portfolio. Mid-caps do better than large-caps in a rising market and generally follow surge in large-caps. Considering the state of the markets now, investment in this fund is more likely to be disappointing than rewarding.

Scheme Details
NFO Opens: September 22, 2008
NFO Closes: October 10, 2008
Type: Open Ended Equity Scheme
Plans: Growth and Dividend
Minimum Investment: Rs 5000
Benchmark: CNX Mid Cap Index
Fund Manager: Mr. Pankaj Tibrewal

Load Structure:
Entry Load: 2.25% for investment of less than Rs 5 crore.
Exit Load: 1% if redeemed before 1 year from the date of allotment.