Reliance Mutual Fund has launched Reliance Long Term Equity Fund, a three year close-ended equity scheme that propagates long-term investing especially because the fund will invest in mid-cap and small-cap stocks.
Cap on Investment is a Positive
Reliance Mutual Fund plans to limit the total investment in RLTEF to Rs 1,000 crore (Rs 10 billion). Experts believe that this strategy augurs well for the scheme. Investment expert Sandeep Shanbhag explains, "Beyond a certain size, a funds asset growth hampers potential return because the number of investment opportunities in a given period of time are limited and then the fund manager is either forced to remain in cash or move down the value chain."
Encourages long-term investing
The close ended nature of the scheme with exit loads in place will prevent undue redemption pressure and give the fund manager long-term money to invest with. Experts believe that this generally works well for a portfolio of small and mid-cap stocks.
Good existing Track Record
Shanbhag believes that the proven competence of the fund house in the mid cap segment augurs well for RLTEF. He explains, "The target segment of this fund i.e. basically stocks with a market cap of less than Rs 1,500 crore (Rs 15 billion), is a segment in which Reliance MF already has an impressive track record in terms of Reliance Growth Fund which has been a top performer over the past few years."
RLTEF NFO v/s Existing Schemes
However, on the flipside, experts ponder - Why invest in a New Fund Offer when there are existing schemes with excellent track record that invest in mid-cap and small cap stocks?
Advisor Hemant Rustagi elaborates, "There are some existing open-ended schemes with excellent track record that invest in mid-cap and small cap stocks. If one were to invest in these schemes, one gets to look at the quality of the portfolio and analyse the consistency with which these funds have performed and followed their investment philosophies over time. In a new fund, it is not possible to do so."
Conclusion:
All said, experts believe, "Investors should note that the small and mid cap segment is unarguably riskier than the large cap space. RLTEF is a good bet for an investor who is looking to diversify his portfolio in this riskier space for the potential of a higher return."
For more on mutual funds, log on to www.easymf.com
