Motilal Oswal Mutual Fund not too long ago launched the Motilal Oswal Nifty Microcap 250 Index Fund, an open-ended fund replicating/monitoring the Nifty Microcap 250 Complete Return Index. The target of placing cash on this fund is to achieve publicity to microcap shares by focusing on firms ranked from the 501st to the 750th place primarily based on market capitalization.

The first goal of investing within the aforementioned vary of firms is to benefit from potential development alternatives whereas diversifying the fund’s portfolio throughout the microcap section of the market. Microcap shares sometimes belong to smaller firms with decrease market capitalization. Investing in such shares can thereby current the potential for greater returns, as these firms have room for vital development. Nevertheless, buyers should watch out for the truth that microcap shares additionally are likely to exhibit greater volatility in comparison with larger-cap shares. This elevated volatility is attributed to varied components, together with decrease liquidity, restricted analyst protection, and potential market inefficiencies. In consequence, investing in microcap shares requires cautious evaluation and threat administration.

Numerous buyers are displaying curiosity on this fund contemplating how the mutual fund market is already cluttered with new fund provides from numerous classes together with large-cap, mid-cap, small-cap, and flexi-cap funds. Many asset administration firms (AMCs) within the nation have additionally gone a step forward in launching targeted fairness funds, momentum funds, and the thematic fund class. There may be hardly any area for innovation, thus, explaining how this new fund within the microcap fund class has generated curiosity amongst buyers.

Mahesh Mirpuri, Mutual Fund Distributor, Make investments Mutual, stated, “Buyers are on the lookout for alpha and a booster. Chatter on social media on the returns of small caps publish Covid-19 might have them . So long as they’ve understood the product and know that this may solely be part of the satellite tv for pc portion of the portfolio, it’s okay. Nevertheless, there are challenges that include small caps, and with micro-cap, the identical challenges are magnified. Liquidity is poor and influence price is excessive. Most buyers haven’t seen the volatility in small caps, what to speak of micro caps. So, concentrate on the information earlier than contemplating an funding.”

Furthermore, it is a passive fund designed to comply with the Nifty Microcap 250 Index that measures the efficiency of the highest 250 microcap firms. That is at the moment India’s solely passive fund providing publicity to microcap shares.

Pratik Oswal, Head of Passive Funds, Motilal Oswal Asset Administration Firm, stated, “With the Motilal Oswal Nifty Microcap 250 Index Fund, we lead the cost in unlocking the untapped potential and alternatives of this distinctive funding class. We imagine that the section holds immense potential and distinctive funding alternatives which have been neglected by many within the business.”

Are microcaps value your funding?

The Nifty Microcap 250 Index is designed to particularly observe the efficiency of the highest 250 firms that aren’t included within the Nifty 500 constituents. This index supplies a well-diversified illustration of microcap shares, with the highest 10 holdings comprising solely 11 per cent of the index’s complete weight. Compared, the highest 10 firms within the Nifty 50 Index account for 59 per cent of the index’s weight.

An vital attribute of the Nifty Microcap 250 Index is its means to supply publicity to sectors which might be sometimes underrepresented in broader market indices. These sectors embrace industrials, shopper discretionary, commodities, and healthcare. By together with these sectors, the index supplies buyers with a extra complete and diversified illustration of the market.

Over the previous three years, the Nifty Microcap 250 Index has delivered an annualized return of 58 per cent. Nevertheless, buyers contemplating investments in microcap indices or funds ought to concentrate on the dangers, together with worth fluctuations and potential liquidity challenges.

Dev Ashish, a SEBI-registered funding advisor and Founder – Secure Investor, says, “Most micro-cap firms are microcaps for a motive. They are often extraordinarily cyclical and vulnerable to a whole lot of totally different dangers than what’s there in say large-midcap area. And given the standard of economic reporting information in India, that too for smaller firms, you actually can’t take the financials of those firms with no pinch of salt. Giant or mid-sized firms have the monetary would possibly to make comebacks from setbacks. However most micro-cap firms don’t have that luxurious. And that’s the largest problem of this area. A micro-company might by no means get better from a short lived concern. So the mortality price of firms on this area is way greater.”

Ashish added, “In my unsolicited private view, the microcap area is extraordinarily dangerous and never appropriate for many retail buyers. They’re higher off investing in simply large-cap index funds, flexi-cap funds, massive & midcap funds, mid-cap funds, and many others. Investing in high-risk microcap area is greatest left to professionals and consultants.”

Microcap firms, constituting round 3 per cent of the entire market capitalization of listed shares, provide distinct traits that make them interesting as funding prospects. These firms are sometimes identified for his or her agility, area of interest market focus, and robust promoter-driven dynamics.

Rishabh Parakh, Chief Play Officer, NRP Capitals, stated, “That is the primary of its sort of providing from a mutual fund to put money into the microcap area. Motilal Oswal Nifty Microcap 250 Index Fund will passively put money into shares which might be a part of the Nifty Microcap 250 index. These are the businesses when it comes to market capitalization after the Nifty 500 firms. Microcap shares are extremely dangerous as in comparison with prime 100-200 shares but in addition have the high-risk-reward potential to ship better returns. Buyers who’ve an aggressive threat profile can look out for this however be cautious because it’s a a lot greater risk-reward proposition than different common mutual funds schemes which might be out out there.”

It is strongly recommended that buyers totally consider their threat tolerance, funding goals, and time horizon earlier than contemplating investments in microcap indices or funds. Conducting complete analysis and searching for steerage from monetary professionals can help in making well-informed funding selections.