Shriram Multicap Fund (SMF), an open-ended equity mutual fund scheme will invest across large-cap, mid-cap, and small-cap stocks. The new fund offer will close for subscription on 21st September 2018.

The primary investment objective of SMF as per the Scheme Information Document is “to generate long term capital appreciation by investing in an actively managed portfolio predominantly consisting of Equity & equity related securities diversified over various sectors. However, there is no assurance or guarantee that the investment objective of the Scheme will be achieved. The Scheme does not assure or guarantee any returns.”

The launch of SMF will help the fund house to build its product basket, which currently, has only one fund – Shriram Hybrid Equity Fund incepted in December 2013.

What does a Multicap strategy mean?

Multicap funds offer the benefit of diversification and have the flexibility to invest across market capitalisation segment (i.e. large-cap, mid-cap, and small-cap stocks) and without sector restrictions.

At present the Large-cap, Mid-cap & Small-cap companies are classified as below:

• Large Cap: 1st to the 100th company in terms of full market capitalisation.
   
• Mid Cap: 101st to 250th company in terms of full market capitalisation.
   
• Small Cap: 251st company onwards in terms of full market capitalisation.

In the absence of any restriction or limit on investment in any particular market cap, multicap funds enjoy the freedom to move from one market cap segment to another, based on the market movement and sentiments, with an aim to generate higher alpha for its investors.

While multicap funds are understood to have nearly equal weightage across market cap segments, most of the funds in this category are currently inclined towards large caps with slight diversification towards mid and small caps.  So, investors potentially get the best of both worlds ––the stability of large caps and the agility of mid-and-small caps.

On the risk-return curve, a multicap fund fits in between large-cap funds mid-cap and small-cap funds. So, do note that although multicap funds come with some safety element of large caps, they also carry the risk associated with mid and small caps. Hence investors should consider investing in multicap funds only if their risk appetite permits, i.e. it is high, and if the investment time horizon is at least 5 years.

Historical Performance Track Record of Multicap Funds:

Scheme Name	1 Year	2 Year	3 Year	5 Year	Std Dev	Sharpe
Motilal Oswal Multicap 35 Fund(G)	18.58	24.16	18.90	-	13.50	0.19
Principal Multi Cap Growth Fund(G)	22.00	25.06	16.33	22.64	15.74	0.20
Aditya Birla SL Equity Fund(G)	15.65	22.63	15.87	23.70	13.10	0.21
SBI Magnum Multicap Fund(G)	17.78	20.23	15.80	22.66	12.45	0.20
Invesco India Multicap Fund(G)	18.55	21.48	15.27	26.77	14.79	0.16
Kotak Standard Multicap Fund(G)	14.41	21.17	15.14	22.56	12.07	0.22
Mirae Asset India Equity Fund(G)	17.47	21.77	15.01	22.48	12.74	0.23
JM Multicap Fund(G)	12.46	23.90	14.51	21.11	14.00	0.20
Parag Parikh Long Term Equity Fund(G)	19.67	18.38	14.17	20.64	9.40	0.27
BNP Paribas Multi Cap Fund(G)	16.84	19.82	13.85	20.59	13.58	0.13
Edelweiss Multi-Cap Fund(G)	22.30	21.93	13.70	-	14.07	0.18
ICICI Pru Multicap Fund(G)	13.47	18.06	13.08	20.27	12.19	0.19
DSP Equity Fund(G)	15.51	19.85	12.38	19.27	14.34	0.15
HSBC Multi Cap Equity Fund(G)	15.09	19.25	12.19	20.82	14.21	0.16
Franklin India Equity Fund(G)	12.95	16.03	12.12	20.53	11.22	0.16
IDFC Multi Cap Fund(G)	14.22	15.79	11.25	21.31	12.89	0.10
L&T Equity Fund(G)	15.48	18.04	11.24	18.85	12.63	0.14
HDFC Equity Fund(G)	14.10	20.16	11.08	18.81	16.13	0.15
IDBI Diversified Equity Fund(G)	15.74	14.88	10.77	-	11.75	0.08
UTI Equity Fund(G)	18.32	15.99	10.50	18.03	11.89	0.18
Canara Rob Equity Diver Fund(G)	17.10	18.26	10.27	16.26	13.37	0.14
Baroda Pioneer Multi Cap Fund(G)	13.16	16.58	9.92	16.62	12.93	0.09
Reliance Multi Cap Fund(G)	15.42	15.69	8.81	18.63	14.76	0.07
Taurus Starshare (Multi Cap) Fund(G)	11.08	15.09	8.36	14.95	13.52	0.08
Union Equity Fund(G)	12.09	14.18	6.59	13.31	12.01	0.09
LIC MF Multi Cap Fund(G)	8.09	11.51	4.81	12.31	15.03	0.03
S&P BSE 500 - TRI	20.35	19.47	12.14	17.04	12.48	0.20

Returns are on a rolling basis and those depicted over 1-Yr are compounded annualised.
Data as on September 19, 2018
(Source: ACE MF)

*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns.

While multicap funds have been superior long-term performers, not all multicap funds have been able to consistently beat the broader market index. Some funds come with a higher element of risk as measured by their standard deviation, whereas some have failed to deliver in terms of risk-adjusted returns (Sharpe Ratio). Thus it is necessary to select your funds carefully and look for funds that come with a stable and consistent track record.

NFO Details of Shriram Multicap Fund

Type	An Open Ended equity scheme investing across large cap, mid cap, small cap stocks.	Category	Multi Cap
Investment Objective	The primary investment objective of the scheme is to generate long term capital appreciation by investing in an actively managed portfolio predominantly consisting of Equity & equity related securities diversified over various sectors. However, there is no assurance or guarantee that the investment objective of the Scheme will be achieved. The Scheme does not assure or guarantee any returns.
Min. Investment	Rs 5,000 and in multiples of Re 1 thereafter	Face Value	Rs 10 per unit
Plans	• Regular • Direct	Options	• Growth • Dividend
Entry Load	NA	Exit Load	1% of the applicable NAV, for exit up to 365 days from the date of allotment of units.
Fund Manager	Mr Kartik Soral	Benchmark Index	Nifty 500
Issue Opens	7th September 2018	Issue Closes:	21st September 2018

Source: Scheme Information Document

Indicative Asset Allocation and Investment strategy of Shriram Multicap Fund

Asset allocation between equities and debt is a critical function in an equity fund. Under normal circumstances the asset allocation of Shriram Multicap Fund shall be as follows:

Instruments	Normal  Allocation (% of net assets)		Risk Profile High/Medium/Low
	Minimum	Maximum
Equity & Equity related Instruments including Derivatives#	65%	100%	Medium to High
Debt & Money Market Instruments#	0%	35%	Low

Source: Scheme Information Document

So, typically, SMF would invest in:

• Equity and Equity-linked instruments of domestic companies/corporations

• Securities issued, guaranteed or supported by the Central Government or any state government

• Securities issued by any domestic government agencies, quasi-government or statutory bodies, Public Sector Undertakings (PSUs), which may or may not be guaranteed or supported by the Central Government or any state government

• Domestic non-convertible securities as well as non-convertible portion of convertible securities, such as debentures, coupon bearing bonds, zero coupon bonds, deep discount bonds, floating rate instruments or any other debt securities or obligations of PSUs, banks, financial institutions, corporations, companies and other bodies corporate as may be permitted by SEBI / RBI from time to time.

• Domestic Commercial Paper (CP), Certificate of Deposits (CD), Bills Rediscounting, CBLO, Repos in Government Securities, and other Money Market Instruments

• Deposits with domestic banks and other bodies corporate

• Domestic derivatives

It is stated in the SID that investment in derivatives shall be for hedging, portfolio balancing or any other purposes as may be permitted by SEBI from time to time and shall be up to 50% of the net assets of the Scheme.

Also, the fund shall not take any leveraged position. The cumulative gross exposure through debt and derivatives position shall not exceed 100% of the net assets of the scheme. Plus, the Scheme will not invest in securitised debt.

The Scheme can invest up to 50% of net assets in Foreign Securities.

As an investment strategy, SMF will follow a blend of value and growth style of investing. To build its equity portfolio, SMF will adopt a bottom-up approach for stock-picking and choose companies across market capitalisation and sectors.

SMF would approach equity investments based on the concept of economic earning power and cash return on investments. The five basic principles that serve as the foundation for this investment approach are as follows:

1. Focus on long-term growth

2. Viewing investments as conferring a proportionate ownership of the business

3. Maintaining a margin of safety (i.e. the price of purchase represents a discount to the intrinsic value of that business)

4. Maintaining an equity outlook on the market by regularly monitoring economic trends and investor sentiment; and

5. Deciding to sell a holding based on one of three reasons:

• The anticipated price appreciation has been achieved or is no longer probable;

• Alternative investments offer superior total return prospects; or

• A fundamental change has occurred in the company or the market in which it competes

SMF may also take advantage of arbitrage opportunities between spot and futures prices of exchange-traded equities.

As regards debt investments, SMF will retain the flexibility to invest in the entire range of debt instruments and money market instruments. Investment in debt and money market instruments will be as per the limits in the asset allocation table, subject to permissible limits laid under SEBI (MF) Regulations.

Who will manage Shriram Multicap Fund?

Shriram Multicap Fund will be managed by Mr Kartik Soral.

Kartik Soral is a Senior Fund Manager at Shriram Mutual Fund. Mr Soral has over 9 years of work experience. Prior to joining Shriram Mutual Fund, he worked with Edelweiss Asset Management Limited as Fund Manager for 3 years, and before that with Larsen & Toubro Limited, Deutsche CIB Centre, Deutsche Bank Group, where he held key positions in the Corporate Finance & Global Equity Derivatives department respectively.

Mr Soral holds a Bachelor's degree in chemical engineering-- B.Tech Chemical Engineering (from IIT-BHU, Varanasi), a PGDM from IIM-Ahmedabad, and is a CFA Charterholder. 

At Shriram Mutual Fund, Mr Soral also manages Shriram Hybrid Equity Fund (erstwhile known Shriram Equity and Debt Opportunities) which has generated an absolute return of 3.9% since the time he started managing it in November 2017 and has underperformed the Nifty-50 TRI ( one of the benchmark index of Shriram Hybrid Equity Fund) by a wide margin.  Overall too, since its launch on November 29, 2013, Shriram Hybrid Equity Fund has trailed its category peers and benchmark index.

Fund Outlook of Shriram Multicap Fund

The investment objective and strategy of SMF indicates that it willhold a diversified portfolio, with no market cap bias and sector restrictions. SMF has the privilege to invest across large cap, mid cap and small cap stocks with enough flexibility.

(Image source: Product presentation of Shriram Multicap Fund)

While multicap funds carry a notch higher risk compared to typical large-cap funds; they are usually less volatile than mid-caps. As mentioned earlier, on the risk-return curve, a multicap fund falls in between large-cap funds and mid- and small-cap funds.

Following a blend of value and growth style of investing depending upon market environment & opportunities is expected aid in portfolio construction while the fund manager would also take a view of stock valuations, macro-economic factors and trends.

The launch of Shriram Multicap Fund comes at a time when the Indian equity market is near its lifetime high and valuations look stretched.

Correspondingly also a time when the Indian rupee has hit a new low ––73 against the US dollar, oil prices are heated, inflation is trending up, bond yields are hardening, and there's pressure on India's current account deficit and fiscal deficit. Moreover, we are a few months away from 2019 Lok Sabha elections.

Corporate earnings for some counters are encouraging, but it is mainly on account low base effect and margins have been flat on account of increase in input costs.

Such a scenario appears challenging for portfolio construction, particularly when the margin of safety appears to have narrowed.

The fortune of Shriram Multicap Fund will be closely linked to how the fund managers play their strategy while building the portfolio.

To read PersonalFN's view,click here.

Editor's note:

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However, you need to look beyond star-ratings and popularity of the mutual fund schemes, to identify the hidden gems that you have probably never heard of, but still carry commendable management qualities and portfolio features that offer superior growth potential to become category outperformers in the long run.

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If you are risk-taker and do not have the time and skill to do your own research, here’s how you can add some hidden gems to your mutual fund portfolio before the crowd discovers them. Want to know which are these ‘Undiscovered’ funds? Click here to read more…

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