Quantum AMC
- not to be confused with Quant - has launched its small-cap fund. The fund opened for subscription on October 16, 2023, and will close on October 27, 2023.
NFO snapshot
| Fund name | Quantum Small Cap Fund |
| SEBI category | Equity: Small Cap |
| NFO period | October 16, 2023 to October 27, 2023 |
| Benchmark | S&P BSE 250 Small Cap total return index (TRI) |
| Fund manager | Chirag Mehta and Abhilasha Satale |
| Exit load | 10 per cent of units withdrawn on or before 365 days from the date of allotment- Nil. Remaining 90 per cent of units withdrawn on or before 365 days from the date of allotment-1 per cent. If redeemed after 365 days from the date of allotment- Nil |
| Tax treatment | Same as any other equity fund. If units are sold after one year: 10 per cent (However, gains up to Rs 1 lakh in a financial year are not taxed). If units are sold within a year: 15 per cent |
What you should do
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We at Value Research have not been very optimistic about most new fund offerings (NFOs). Instead, you should look at a fund with at least three years of track record.
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In fact, there are a number of established small-cap funds with proven track records in the mutual fund universe. They'd be more suitable options.
- Even if you want to look past that and contend most small-cap funds are doing well, we'd suggest you consider this fund from a long-term perspective only. You should have at least a seven to 10-year time horizon.
That's because small-cap funds can go through long periods with minimal or negative returns. As a result, you'll need to be patient during such lean phases.
We'd suggest you read ' With small-cap funds, it's either Sholay or Chhole ' for better understanding.
Having said that, here's some information you should have about the fund.
Why Quantum is launching a small-cap fund now
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Even an average small-cap fund has delivered blockbuster returns of 28.6 and 36.15 per cent in the last one and three years, respectively.
- As a result, small-cap funds have attracted massive inflows of around Rs 22,000 crore in just the first six months of the current financial year.
To give you context, this was the same amount collected by the small-cap category in the entirety of the previous financial year.
The fund's strategy
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This fund will invest between 65 and 100 per cent of investors' money in small-cap companies. These are companies ranked 251 onwards in terms of total market capitalisation.
- However, like any other small-cap fund, the Quantum fund can also choose to invest up to 35 per cent of its assets in large and mid-cap companies.
Stock selection criteria
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As per the fund house, this fund will have a portfolio comprising 25 to 60 stocks. They will be chosen from a universe of 945 stocks.
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The fund will choose companies based on growth, operating margin and returns ratios, among other criteria. These companies will also go through another filter, known as growth at a reasonable price (GARP).
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To ensure there is no liquidity problem, stocks with a minimum average daily trading value of Rs 2 crore will be prioritised.
- Last but not least, the fund intends to have at least a 2 per cent exposure to each stock at cost. If implemented, that will be a sizable exposure to each small-cap stock.
About the fund managers
Chirag Mehta and Abhilasha Satale will manage the fund.
Mehta holds the position of Chief Investment Officer (CIO) at the fund house. His over 18 years of experience lie in commodities and alternative investment research and investment functions.
Satale joined Quantum Asset Management Company (AMC) in June 2022 and has over 18 years of experience in the Indian capital markets. This marks her first role as a fund manager.
About Quantum Mutual Fund
Quantum Mutual Fund was established in 2006. Despite being in the industry for around 17 years, the fund house has average assets of around Rs 2,024 crore spread across 11 mutual funds as of the July-September quarter.
The last word
The humongous small-cap returns have prompted a few fund houses to launch their small-cap schemes.
However, given the rich valuations at the moment, is it the right time to invest in small-cap funds?
Individual investors should recognise that small-cap investing requires a great deal of patience to earn returns. Check the ' What you should do ' section above to understand the mindset needed to be a successful small-cap fund investor.
Also read: Three questions to ask before investing in NFOs
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