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Is Principal Junior Cap Fund good?

May 25, 2005

 Summary
  • Type
  • Open ended equity (diversified)
  • Benchmark
  • CNX Nifty Junior
  • Min. Investment
  • Rs 5,000
  • Face Value
  • Rs 10
  • Entry Load
  • Waived off during IPO *
  • Exit Load
  • 2.00% (Maximum) on exit within 180 days*
  • Issue Opens
  • May 12, 2005
  • Issue Closes
  • June 08, 2005
    *Entry load - 2.25% (Max.) in post - IPO period; Exit load - Nil in post - IPO period

     Investment Objective

    The investment objective of the scheme is to provide capital appreciation and/or income in the form of dividend by investing predominantly (at least 65% of net assets) in the equity and equity related instruments of the companies within the market capitalisation range of the companies comprising CNX Nifty Junior Index. Of this, at least 51% will be invested in the equity and equity related instruments of the companies that comprise the CNX Nifty Junior Index. Upto 35% of the net assets will be invested in the stocks of companies with the market capitalisation below Rs 2,000 crore as on the date of investment.

     Is this fund for you?

    Flexi cap funds with a strong mid cap flavour have been launched by fund houses at an alarming frequency in the recent past. Principal Junior Cap Fund (PJCF) joins this over-populated segment albeit with a difference. The fund has been positioned as an "index plus" fund which will invest in both large cap and mid cap stocks.

    The CNX Nifty Junior Index has been chosen as the benchmark index for sourcing stocks of the large cap variety. Similarly the fund house has indicated that the CNX Mid Cap 200 could be a breeding ground for selecting stocks from the mid cap segment.

    Funds of the flexi cap variety which purport to clock gains by moving across market segments tend to be high risk investment propositions; PJCF is likely to be no different. Investors with an appetite for high risk investment avenues can consider adding the fund to their portfolios. Investors can also exercise the option of investing in PJCF using the Systematic Investment Plan (SIP) route during the IPO period.

     Portfolio Strategy

    PJCF's investment objective explicitly outlines its portfolio strategy. The fund will at all times invest at least 65% of its net assets in equity/equity related instruments within the market capitalisation range of companies comprising the CNX Nifty Junior Index. The CNX Nifty Junior Index comprises the next 50 liquid securities after the S&P CNX Nifty; also the securities from the two aforementioned indices are mutually exclusive.

    InstrumentsAllocation Range
    MinimumMaximim
    Equity/equity related instruments within
    the market cap of companies comprising
    CNX Nifty Junior Index
    65%100%
    Out of the above, equity/equity
    related instruments of companies
    that comprise CNX Nifty Junior Index
    51%100%
    Equity/equity related instruments of
    companies with market cap less than
    Rs 2,000 crores
    0%35%
    Money market instruments0%30%

    Further, PJCF will ensure that 51% of the above investments will be in equity/equity related instruments of companies featuring in the CNX Nifty Junior Index. The bias in favour of the CNX Nifty Junior Index is strongly evident.

    The fund is also mandated to invest upto 35% of its net assets in equity/equity related instruments of companies with a market cap of less than Rs 2,000 crores (Rs 20 bn). PJCF can also hold upto 30% of its assets in money market instruments.

    Principal Mutual Fund has conventionally emphasised on delivering on the risk-adjusted return front by following a risk-controlled investment strategy. Equity-oriented funds from the fund house tend to score well on the volatility control parameter as well. We believe that such a fund management style could play a role in blunting the risk associated with a typical flexi cap offering.

     Fund Manager Profile

    Shyam Bhat is an electrical engineer from VJTI, and has done his Masters in Management Studies from NMIMS, Mumbai. He joined Principal PNB Asset Management Company Private Ltd as AVP (Investments) in May 2004, and manages Principal Growth Fund, Principal Resurgent India Fund among others. Prior to joining Principal, Mr. Bhat was associated with Tata Mutual, where he was a member of the fund management team, managing equity and balanced funds.

     Outlook

    Given the index-plus investment strategy, PJCF's fortunes will be closely linked to those of stocks from the CNX Nifty Junior Index. Also the fund has indicated its intention to invest a significant portion of its corpus in stocks from the mid cap segment which tend to be high risk investment propositions.

    We believe the fund is a high risk - high return investment proposition and risk-taking investors can consider investing in the same.


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