Principal Small Cap Fund NFO – Smallcaps bouncing back now – Should you invest?

Principal Small Cap Fund NFO Review - should you investPrincipal Small Cap Fund NFO – Should you invest?

Small cap stocks are bouncing back now in 2019. To encash the opportunities in a small cap segment, Principal Mutual Fund has come up with its new small cap mutual fund scheme. Principal Small Cap Fund NFO would open for subscription on 22nd April, 2019. As the name indicates, Small cap fund from Principal MF would invest in small cap stocks in India. The Principal Small Cap Fund has come up with unique features to safeguard investors as investing in the Small Cap Fund is high risk. Should you invest in Principal Small Cap Fund NFO? How is the Performance of small cap funds now? What are the risk factors an investor should consider before investing in such small cap mutual fund schemes?

Overview about Principal Mutual Funds

You would have less heard about Principal Mutual funds, hence let me provide quick overview about them. You can skip this section if you are already aware of them.

They are part of the Principal Financial Group, a global investment management leader headquartered Iowa, US.  They started doing business in India in 2000. Currently it serves over 5 lakh customers. They are working with over 20,000 empaneled distributors across the country. Their objective is to offer quality investment and long-term financial solutions.

Features of Principal Small Cap Fund NFO

This is an open-ended mutual fund equity scheme.

This is a small cap mutual fund scheme that invests in small cap stocks in India. These small cap stocks would be from 251st company in terms of market capitalization.

This scheme would open for subscription on 22nd April, 2019

This scheme would close for subscription on 6th May, 2019.

You can invest through your demat account /  MF broker or one of the best Mobile App to invest in Mutual Funds.

Since this is an open ended scheme, it would again open for subscription after 5 business days from the date of allotment of Mf units after the NFO period. Means this would reopen for subscription on 15th May, 2019.

This scheme is available in both regular and direct plans.

This plan offers both growth option and dividend option.

This scheme is available for lump sum and SIP investment.

Minimum investment is Rs 5,000 and in multiples of Rs 1 there-off for lump sum investments.

Minimum investment is Rs 25,000 for STEP option which aims to protect against fall in stock markets.

Minimum investment is Rs 500 per month for monthly SIP and for a tenure of 6 months.

The NAV of the NFO is Rs 10 per unit now during initial subscription.

There is no entry load to invest in this mutual fund scheme.

If one wants to exit before 1 year from the date of investment, there is a 1% exit load if the no. of units redeemed are > 25%. If it is < 25% of units, there is no exit load.

This scheme is classified as moderately high risk scheme.

Scheme total expense ratio (TER) is estimated at a maximum of 2.6% of the total assets on any day.

Principal Small Cap Fund NFO details can be downloaded from here.

Who can invest in this mutual fund scheme?

Any of the following can invest in this scheme in this scheme.

1) Resident Individuals

2) Resident Indian Nationals, including partnership firms, companies, Banks, HUFs, Sole Proprietorship etc.,

3) NRI’s

4) Foreign Portfolio Investors

Who is the Fund Manager of Principal Small Cap Fund NFO NFO?

The Fund Manager is Mr. PVK Mohan and Mr.Siddarth Mohta.

What is the benchmark for this scheme?

The benchmark for this scheme is NIFTY Small Cap 100 Index.

What is the investment objective and strategy of this Principal Small Cap Fund NFO?

This fund’s objective is to generate long term capital appreciation by investing in equity and related instruments of small cap companies in India. However, there is no assurance of any guaranteed returns.

What is the allocation pattern in this mutual fund scheme?

This fund investment pattern is as follows:

1) It invests 65% to 100% in equity and equity related Instruments of small cap stocks in India. The risk profile in this segment is high.

2) It invests 0% to 35% in equity stocks other than small cap stocks. The risk profile in this segment is high.

3) It invests 0% to 35% in debt and money market instruments including units of debt and liquid schemes. This risk profile in this segment is low to medium.

Can NRI invest in this MF scheme?

Yes, NRIs can invest in this mutual fund scheme. They can invest on repatriation or non repatriation basis.

What is STEP option available in Principal Small Cap Fund NFO?

STEP is an option to safeguard / protection against a fall in the stock market. Principal Mutual Fund is offering this as part of the NFO now.

STEP refers to Smart Trigger Enabled Plan.

The investments through STEP model is made in 4 equal installments in Principal Small cap fund.

It invests only 25% of the STEP amount in the small cap fund and balance it would invest in liquid funds. For every 3% fall in the benchmark, this scheme would shift 25% of liquid funds to small cap funds. This way you are protected from fall in stock markets.

Here is how STEP works exactly

Principal Small Cap Fund NFO - How STEP up works

Why should you invest in such Small Cap Fund now?

Small cap funds are high risk, hence one need to ask few questions as to why we need to invest now.

1) The universe of small cap stocks is very high. Any company with 251st  + company in terms of market capitalization is termed as small cap and there are thousands of companies to invest. This provides a large scope to invest in a variety of companies.

2) There are several companies in the small cap segment, which are emerging now and that have high potential for investment.

3) Principal Small Cap Fund has come up with a unique feature of STEP and Auto Trigger facility which can help investors to manage their investments well in such high risk small cap funds.

4) The small Cap segment has fallen by over 30% in the 2018. Every time there is fall in small cap stocks, there is a bounce back in subsequent years. This trend is seen in the last 10 years for 3 times, hence we can expect similar positive trend in 2019. Here is the trend chart.

Principal Small Cap Fund NFO - Why Small caps are expected to bounce back

Some key risk factors you should consider before you invest in such small cap funds

One should consider some of these risk factors / negative factors before investing.

1) This scheme invests in small cap stocks that are high risk. Even if Sensex/NIFTY is moving in a positive direction, small cap stocks can move in a negative direction (which we are seeing now in the last 1 year). Hence Stock Market direction could be different from SENSEX Vs Small cap stocks.  

2) Investors should not assume any guaranteed returns from such small cap mutual fund schemes.

3) Since it is a new mutual fund scheme, there is no past performance, hence we would know how the fund would perform in the future.

4) It invests upto 35% in debt instruments where there is interest rate risk.

How is the Performance of Small Cap Mutual Funds in India?

Currently there are existing small cap mutual fund schemes in India. Let us see how they have been performing in the last 5 years.

1) SBI Smallcap Fund: This fund gave 27% annualized returns in the last 5 years, 16% annualized returns in the last 3 years, 10% negative returns in the last 1 years. This fund gave 5% returns in the last 3 months due to bounce back of small cap segment now.

2) Reliance Small cap Fund: This fund gave 24% annualized returns in the last 5 years, 16% annualized returns in the last 3 years, 12% negative returns in the last 1 years. This fund gave 3% returns in the last 3 months with rise in small caps now.

3) Franklin India Smaller Companies Fund: This fund gave 19% annualized returns in the last 5 years, 11% annualized returns in the last 3 years, 9% negative returns in the last 1 years. This fund gave 5% returns in the last 3 months with small caps bounce back.

4) HDFC Small Cap Fund: This fund gave 19% annualized returns in the last 5 years, 19% annualized returns in the last 3 years, 5% negative returns in the last 1 years. This fund gave 4% returns in the last 3 months indicating positive trend now in small cap stocks.

5) Axis Smallcap Fund: This fund gave 19% annualized returns in the last 5 years, 12% annualized returns in the last 3 years, 1% negative annualised returns in the last 1 years. This fund gave 4% returns in the last 3 months due to bounce back of small cap segment now.

Should you invest in the Principal Small Cap Fund NFO?

The small cap segment is bouncing back now. It is expected that in 2019 and 2020, Small cap mutual funds can give superior returns. Principal Small Cap Mutual Fund is a relatively new fund, hence it may or may not perform good in future. However, considering growth opportunities in a small cap segment, high risk investors can invest in this scheme. If you do not want to test with new schemes, you can invest in some of  the best small cap mutual fund schemes which we recommended few days back.

If you like this article, please share this on your Facebook or Twitter. This would be a special gift which you would be giving to our blog.

Suresh

Principal Small Cap Fund NFO – Should you invest

Leave a Reply

Your email address will not be published. Required fields are marked *