In a crowd of mid-cap, large-cap and no-particular-cap funds, Cholamandalam Mutual Fund has launched a diversified equity fund with a new approach--multi-cap.
Chola Multi Cap funds, as the name suggests, will look at investment opportunities in companies representing all possible levels of market capitalisation. According to the AMC, the fund will have an optimum blend of large- mid- and small-cap stocks in its portfolio to provide added diversification. While the large- and mid-cap exposure will be maintained between 25 to 75 per cent each, exposure to the riskier small-cap stocks will not exceed 15 per cent.
According to Chola Mutual CEO Shashi Krishnan, "Most diversified equity funds are diversified across sectors but not across companies of different sizes. Our new fund will exploit opportunities in companies of all sizes". The fund is designed to offer many advantages. It offers a single exposure fund that ends the need to invest separately into large-, mid- or small-caps funds for growth and stability. The fund would be better placed in terms of diversification as it can invest across all market capitalisation. It would also have the advantage of holding on to big mid-cap performers even after they become large-caps.
Our Take
In practice, while this fund is no different from diversified equity funds--most of the long term winners have maintained a portfolio similar to the one aimed by this fund--a well-defined asset allocation may help it establish a distinct identity. Volatility is the part and parcel of mid- and small-caps. So, only those who could withstand a fair amount of volatility and plan to stay put for a longer time horizon should consider this fund.
Also, since it's just the starting point for the fund, it would be better to adopt a wait and watch policy here. New funds have no past but definitely an uncertain future. So, it would be better to first see how the fund handles the market.
This will be Chola's fourth diversified equity fund, after Cholamandalam Growth, Chola Opportunities, and Chola Midcap. Of these, Chola Opportunities has been around the block a bit--it started life as a diversified fund named Chola Freedom Growth, was then changed to a tech fund named Chola Freedom Technology and then went back to being a diversified fund under its current name.
The initial public offer for Chola Multi-Cap Fund is open from December 14, 2004, to January 10, 2005.
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