NFO- Reliance Small Cap Fund

Reliance Small Cap Fund
Fund Facts
Offer Opens	26th August 2010
Offer Closes	09th September 2010
Scheme Type	Open - Ended Equity Fund
Minimum Investment	Rs. 5,000/-
Loads	Entry – NIL Exit – 2% if redeemed before 12 months, 1% if redeemed between 12-24 months and Nil thereafter
Options	Growth, Dividend – Payout & Reinvestment
Objective	The primary investment objective of the scheme is to generate long term capital appreciation by investing predominantly in equity and equity related instruments of small cap companies and the secondary objective is to generate consistent returns by investing in debt and money market securities.
Fund Manager	Mr. Sunil Singhania
Benchmark	BSE Small Cap
Asset Allocation	Equities of Small Cap Companies – 65% - 100% Investment in Equities or any other Companies – 0% - 35% Investment in Debt & Money Market Securities - 0% - 35%
Returns of same type of fund	Scheme Name 3 Months 6 Months 1 Year 3 Years DSP BlackRock Micro Cap Fund 17.41 41.75 90.18 19.93 Franklin India Smaller Companies Fund 18.60 22.93 45.98 9.39 HSBC Small Cap Fund 11.15 28.12 59.78 -- ING C.U.B. Fund 14.88 21.92 42.77 9.81 JPMorgan India Smaller Companies Fund 18.13 28.67 52.11 -- L&T Small Cap Fund 11.17 10.56 24.20 -- Sundaram BNP Paribas Select Small Cap Fund 20.06 26.56 52.24 12.65 Indices S&P Nifty 12.16 13.88 22.19 10.72 BSE Sensex 11.90 13.33 20.80 9.57 CNX500 12.87 13.07 25.16 10.78 CNX Midcap 17.79 24.72 53.13 17.40 CNX Nifty Junior 15.21 21.68 47.09 15.32 BSE SMALL CAP 17.35 21.64 52.98 9.42
Returns of fund managed by same fund manager	Scheme Name 3 Months 6 Months 1 Year 3 Years Reliance Banking Fund 24.27 42.98 65.39 30.87 Reliance Diversified Power Sector Fund 11.25 14.49 25.50 22.98 Reliance Growth 12.72 18.39 38.84 18.84 Reliance Infrastructure Fund 10.49 10.39 15.72 -- Reliance Long Term Equity Fund 18.48 27.14 50.96 14.79 Indices S&P Nifty 12.16 13.88 22.19 10.72 BSE Sensex 11.90 13.33 20.80 9.57 BSE200 12.84 15.15 26.49 11.54 BSE100 12.26 14.00 23.76 11.12 CNX Bank Nifty 20.78 29.91 49.73 21.12
Analyst View	Smallcap funds lie at the higher end of the risk-return matrix owing to their higher volatility in returns and extreme sensitivity to market swings. Smallcaps are generally the stocks with a market capitalization of under Rs. 500 Crs. There are more than 4300 small caps listed on BSE with just 1065 companies which have a marketcap of more than Rs. 200 Crs. There are only 664 cos with a turnover of Rs. 200 Crs and just 548 companies with a net profit of more than Rs. 10 Crs. Thus, what implies is, the returns from these funds would be driven more by stock selection rather than asset allocation play. A major part of the portfolio may be subject to heavy churning and a small percentage of assets may be held till the valuation gap is filled. In terms of performance, these funds are clear winners in the bull rallies but at the same time they also figure out in the bottom quartile when the markets are jittery. But when viewed from a 5-6 years horizon, these funds face no competition. If we juxtapose the performance of BSE Sensex, BSE Midcap and BSE Smallcap for last 6 years (i.e. 20/08/2004 – 20/08/2010) the BSE Sensex has returned an simple annualized return of 43.87%, Midcap has returned 45.32% and BSE Smallcap has returned a jaw-widening 63.04%. The reason is simple. These stocks are usually under-valued and are available at low valuations. They are also low researched and thus have less institutional holding. The key is to identify business with strong management and growth potential. Once the business is established, the ramp-up can be really rapid and this does need some time. Thus, its important to have a long term investment horizon in order to hold these funds in your portfolio. And if you really do, you can be rest assured, they can do wonders to your portfolio performance.

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