https://images.app.goo.gl/zKAob6DSG8sHX6i36During its new fund offer (NFO) period, more than 26,000 investors contributed more than Rs 120 crore to the Motilal Oswal Nifty Microcap 250 Index, India’s first passive scheme focused only on this market-cap category. Beginning on June 15 and ending on June 29, the NFO period of the scheme was open. Swapnil Mayekar and Rakesh Shetty (for the debt component) are the fund managers for the scheme.
“Motilal Oswal” The Nifty Microcap 250 Index Fund, modelled after the Nifty Microcap 250 Index, is intended to assess the performance of the top 250 businesses, omitting those that already make up the Nifty 500 components.
The top 100 listed businesses are categorised as largecaps by the Securities and Exchange Board of India (SEBI), followed by midcaps at positions 101 to 250, and smallcaps at positions 251 to 500. The remainder, somewhere between 4,000 and 5,000, are microcaps.
Religare Enterprises (1.53 percent), Karnataka Bank (1.40 percent), Ujjivan Financial Services (1.30 percent), Procter & Gamble Health (1.23 percent), and Reliance Power (1.07 percent) are the top five weighted components of the Nifty Microcap 250 Index.
The top five sectors in terms of sectoral weight are Capital Goods (19.52%), Financial Services (13.08%), Healthcare (9.90%), Chemicals (7.57%), and Construction (6.66%). The top 10 holdings account for only 11% of the index, compared to 59 percent in the Nifty 50 Index, indicating that it is well-diversified. The Nifty Microcap 250 Index has outperformed both the Nifty 50 (26 percent) and the Nifty Smallcap 250 index (42 percent) during the past three years, returning 58 percent on an annualised basis.
Although the Motilal Oswal Nifty Microcap 250 Index is the first passive strategy to provide exposure to microcap stocks by investing in businesses ranked from 501st to 750th in terms of market capitalization, there are already funds that make microcap stock investments. Nippon India Small Cap, for instance, has exposure to microcap equities totaling Rs. 8,162 crore. In this sector, HDFC Small Cap has committed Rs 4,981 crore.
By way of background, Nippon India Life Asset Management on July 6 announced that starting on July 7, it will no longer accept lump-sum contributions into the Nippon India Small Cap Fund.
Keep in mind that historically, drawdowns in microcaps have been greater than those in smallcaps and largecaps. Additionally, compared to smallcap or Nifty 50 equities, this group of stocks is far more volatile. For the majority of retail investors, a large-cap or flexi-cap fund is sufficient in terms of portfolio diversification. Additionally, the market offers a wide variety of active smallcap funds for investors with higher risk tolerances.
