Sundaram's Micro-is-Beautiful Gambit | Value Research Sundaram gets into the tiny end of the markets with launch of Select Micro Cap Fund
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Sundaram's Micro-is-Beautiful Gambit

That there are gems hidden at the small end of the equity market is self-evident. However, there are a lot of base stones also and distinguishing between the beauties and the ugly ones is far more difficult to do than anything else in the equity investing.

Investing in very small companies is difficult for a number of reasons. The quality of information is poor, the businesses and the management are poorly understood, and making the wrong or right decision can affect a tiny business far more than a big one. In the markets, most of them suffer from poor liquidity. So little of their stock is generally being bought or sold and getting in or out of a stock without impacting the price severely can take a long time.

All this makes identifying and profiting from good small companies difficult, but if it has to be done, then a mutual fund is a much better way of doing so than an investor could directly.

There are a handful of equity funds dedicated to micro-caps, and now Sundaram Mutual Fund has also decided to throw its hat in the ring with a fund named Sundaram Select Micro Cap - Series I. This is a five-year closed-end fund and the new fund offer (NFO) closes on December 30th.

The fund's definition of micro-cap is linked to a rank on the NSE. It defines the beginning of micro-cap at the 301st rank on the National Stock Exchange. By this definition, all companies that are smaller in capitalisation than number 301 are micro-cap.

The fund need not have a pure micro-cap strategy--according to the prospectus, micro-cap exposure can vary from 100 per cent down to 65 per cent, the remaining 35 per cent could be deployed in other equities or fixed income by the fund manager.

Although we are generally not fans of closed-end funds, we do recognise that for such a fund, which deals in highly illiquid stocks, closed-end may be an advantage.

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