Sundaram Equity Fund (SEF) launched from the stable of Sundaram Mutual Fund, is a multi-cap fund that will invest predominantly across market cap segments (i.e. large-cap, mid-cap and small-cap).

The fund house believes that multi-cap funds are suitable for any market conditions when there is no clear direction of movement of any particular market cap segment.  Besides, since the multi-caps are well-diversified, due to the flexibility to invest in the best ideas within the cap curves, the downside risk involved is minimised in turbulent times and can provide better risk-adjusted returns compared to single cap funds.

Thus, considering the current times of volatility, the fund house launched this multi-cap fund, Sundaram Equity Fund.  

What does a Multicap strategy mean?

Multi-Cap funds seek to invest across market capitalization segments from large-cap to midcap to small caps. The fund manager has complete flexibility to manage allocation between different sectors, market cap segments, styles etc.

At present as per the SEBI guidelines the Large Cap, Mid Cap & Small Cap companies are classified as below:

  1. Large Cap: 1st -100th company in terms of full market capitalization.
  2. Mid Cap: 101st -250th company in terms of full market capitalization.
  3. Small-Cap: 251st company onwards in terms of full market capitalization.

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

Sundaram Equity Fund will adopt a approach of portfolio construction that will be market cap agonistic. For the purpose of allocation between Large, Mid and Small Cap segments it will follow a unique internal research-driven process which is based on valuation, expected earnings growth, market and business cycles.

The cyclical recovery of business will be characterised by:

  • Bottoming out industry growth with catalysts for improving demand
  • Improving industry capacity utilisation leading to an uptick in pricing and profitability
  • Revival in industry profitability owing to consolidation/ reduced competition/ better supply-side discipline.

The Sundarm Equity Fund would typically maintain a maximum allocation towards Large Caps and can go up to 80% based on prevalent market conditions. Allocation to large caps would provide stability to the portfolio with reasonable returns, whereas its exposure to Mid and Small Caps would be alpha accretive.

[Read: Why You Should Not Ignore Personalized Asset Allocation While Investing]

Note that on the risk-return curve, a multi-cap fund fits in between large-cap funds and mid-and small-cap funds. So, do note that although multi-cap 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 multi-cap funds only if their risk appetite permits, i.e. it is high, and if the investment time horizon is at least 5 years.

Table 1: Details of Sundaram Equity Fund

Type An open-ended equity scheme investing across large-cap, mid-cap, small-cap stocks. Category Equity-linked saving scheme
Investment Objective To generate capital appreciation by investing in a diversified portfolio of equity & equity related instruments across market capitalisation.

There is no guarantee or assurance that the investment objective of the scheme will be achieved. Investors are neither being offered any guaranteed/indicated returns nor any guarantee on repayment of capital by the Schemes. There is also no guarantee of capital or return either by the mutual fund or by the sponsor or by the Asset Management Company.
Min. Investment Rs 100 and in multiples of Re 1 thereafter Face Value Rs 10 per unit
Plans  • Regular
• Direct
Options • Growth*
• Dividend (Payout, Re-Investment & Sweep *)
*Default option
Entry Load Nil Exit Load For redemption:
  • Within 12 months from the date of allotment– 1%.
  • On or after 12 months from the date of allotment – Nil
Fund Manager Mr S Krishnakumar & Mr Bharath S (Equity), Mr Dwijendra Srivastava (Fixed Income) and Mr Rohit Seksaria, investments in overseas securities. Benchmark Index S&P BSE 500 TRI Index
Issue Opens 16/08/2019 Issue Closes: 30/08/2019

(Source: Scheme Information Document)

How will the scheme allocate its assets?

Under normal circumstances, the scheme’s asset allocation will be as under:

Table 2: SEF’s Asset Allocation

Instruments Indicative Allocation (% of Total Assets) Risk Profile
Minimum Maximum
Equity & Equity related securities across market capitalisation*65%100% Medium to High
Fixed Income and Money Market Instruments^ / Cash & Cash equivalents  0%35%Low to Medium

*Includes investment in equity and equity-related securities of companies of all market capitalisation i.e. Large Cap, Mid Cap, Small Cap companies as defined below:

  • Large Cap: 1st -100th company in terms of full market capitalization.
  • Mid Cap: 101st -250th company in terms of full market capitalization.
  • Small-Cap: 251st company onwards in terms of full market capitalization.
Equity and equity-related securities include Convertible bonds, debentures and warrants carrying the right to obtain equity shares.
^Money Market Instruments includes Certificate of Deposits, Commercial Papers, T Bills, Government Securities having an unexpired maturity up to 1 Year, Call or notice Money, Commercial Bills, Bills Rediscounting, Reverse Repo, TREPS and any other instruments as defined by RBI/SEBI from time to time.
  • The scheme shall not invest in securitized debt or in credit default swap.
  • The scheme shall not engage in short selling.
  • The scheme shall engage in securities lending subject a maximum of 20% and 5% for a single counterparty.
  • The Scheme shall invest in ADR/GDR/Overseas securities upto 30% of the net assets
  • The Scheme shall invest in the repo in Corporate Bond up to 10% of the net assets of the scheme
  • The Scheme may use derivatives for trading, hedging and portfolio balancing. Exposure to derivatives will be limited to 50% of the net asset value of the Scheme at the time of the transaction

(Source: Scheme Information Document)

What will be the Investment Strategy?

The Sundaram Equity Fund aims to provide long term capital growth by investing in a well-diversified portfolio of equity and equity-related securities across market capitalisation and sectors. The scheme would aim to participate in the all-round growth of the economy. To achieve this fund managers will identify suitable stocks that will benefit from economic growth.

SEF may follow a bottom-up approach towards investing/identifying individual stocks and a top-down approach towards investing/identifying sectors such that the resultant portfolio is highly diversified.

[Read: Two Approaches To Portfolio Construction Followed By Fund Managers]

The Scheme would invest in companies based on various quantitative and qualitative criteria like:

  • Sound financials,
  • Professional management,
  • Track record,
  • Industry scenario,
  • Industry and company growth prospects etc.,

The Fund may also invest in overseas equities and ADR’s / GDR’s depending on the Investment Manager’s view/analysis.

[Read: Should You Be Investing In Offshore Funds?]

To reduce the risk of the portfolio, the fund managers may also use various derivatives and hedging products from time to time for hedging and rebalancing purposes, in the manner permitted by SEBI. The Scheme retains the flexibility to hold from time to time relatively more concentrated investments in a few sectors or a concentrated portfolio of stocks.

Who will manage SEF?

The equity portion of the Sundaram Equity Fund will be co-managed by Mr S Krishnakumar and Mr Bharath S. Mr Dwijendra Srivastava will manage the Fixed income portion of the scheme and Mr Rohit Seksaria is the dedicated fund manager for investments in overseas securities.

Mr Krishnakumar S holds an honorary degree in Engineering (BE) and has done his post-graduation diploma in Business Administration. He has more than 13 years of experience in Equity Research and Fund Management.

He has been associated with Sundaram Asset Management Company Ltd from December 2003

as a Senior Research Analyst. Over the years he has grown to become an integral part of the AMC.

Currently Mr Krishnakumar is the Chief Investment Officer of Equities and manages, Sundaram Mid Cap Fund, Sundaram Small Cap Fund, Sundaram Select Small Cap Series Fund,  Sundaram Diversified Equity Fund, Sundaram Select Micro Cap Series VI to Sundaram Select Micro Cap Series XVII,  Sundaram Long Term Micro Cap Tax Advantage Fund Series III to Sundaram Long Term Micro Cap Tax Advantage Fund VI,  Sundaram Large and Midcap Fund, Sundaram Financial Services Opportunities Fund, Sundaram Emerging Small Cap Series – I and Sundaram Emerging Small Cap Series-II as the lead fund manager.

Some of the other schemes that Mr Krishnakumar co-manages are  Sundaram Infrastructure Advantage Fund, Sundaram Global Advantage Fund, Sundaram Debt Oriented Hybrid Fund, Sundaram World Brand Fund Series – II, Sundaram World Brand Fund-III and Sundaram Rural and Consumption Fund.

Mr S. Bharath, a commerce graduate (B. Com), completed his MBA, Financial Risk Management (FRM) and ICWA. He has 6 years of experience in Fund management.

He has been associated with Sundaram Asset Management Company Ltd from April 2018. Prior to that, he has worked as a Fund Manager and Research Analyst.

Currently at the fund house, some of the schemes which Mr S. Bharath manages include; Sundaram Smart Nifty 100 Equal Weight Fund, Sundaram Value Fund Series II to Sundaram Value Fund Series X and Sundaram Long Term Tax Advantage Fund Series I to Sundaram Long Term Tax Advantage Fund Series III.

Mr Dwijendra Srivastava joined Sundaram Asset Management Company Ltd as the Chief Investment Officer for Debt Investments. He has done his B. Tech with a specialization in Textile Technology, PGDM in Finance and CFA. He has a work experience of over 12 years in Fixed Income and Fund Management.

Before joining the fund house, he was the Head of Fixed Income at Deutsche Asset Management (India) Ltd, Vice President and Fund Manager at JM Financial Asset Management Ltd and has been associated with the Fund Management Team of Tata Asset Management as the Fund Manager.

Currently at the fund house, some of the schemes which Mr Dwijendra co-manages include; Sundaram Money Fund, Sundaram Ultra Short-Term Fund, Sundaram Flexible Fund Short-Term Plan, Sundaram Flexible Fund Flexible Income Plan, Sundaram Gilt Fund, Sundaram Bond Saver Fund, Sundaram Select Debt Short-Term Asset Plan, Sundaram Monthly Income Plan, Sundaram Capital Protection Oriented Fund – 5 Years – Series 7 , Sundaram Capital Protection Oriented Fund – 5 Years – Series 8 , Sundaram Fixed Term Plans and Sundaram Hybrid Fund Series M & N.

Mr Rohit Seksaria, has a bachelor’s degree in commerce (B. Com), a PGDM and is a CFA. He has a work experience of over 12 years in Fund Management and Equity Research.

Mr Rohit is currently an Assistant Fund Manager of Equity at Sundaram Asset Management Company Ltd. Before joining the fund house, he was a Senior Analyst at Progress Capital Pte Ltd, Singapore and Matchpoint Investment Management Asia Ltd, Hong Kong. Prior to that, at Irevna Research Services Ltd he worked as the Head of Research and as a manager at UTI Mutual Fund.

Currently at the fund house, some of the schemes which Mr Rohit jointly manages include;

Sundaram Global Advantage Fund, Sundaram Debt Oriented Hybrid Fund, Sundaram World Brand Fund Series – II and Sundaram World Brand Fund-III.

Table 3: Performance of the Schemes managed by the fund managers

Scheme Name Benchmark name Managing since  Scheme returns (%) Benchmark returns (%)
Category: Conservative Hybrid Fund        
Sundaram Debt Oriented Hybrid Fund CRISIL Hybrid 85+15 – Conservative Index Jun-2012 7.61 9.55
Category: Equity Linked Savings Scheme        
Sundaram Diversified Equity Nifty Smallcap 100 Mar-2015 6.18 -0.65
Sundaram LT Micro Cap Tax Adv Fund-Sr III Nov-2016 -4.14 -2.42
Sundaram LT Micro Cap Tax Adv Fund-Sr IV Mar-2017 -11.14 -9.80
Sundaram LT Tax Adv Fund-Sr I S&P BSE 500 Apr-2018 -6.21 -4.19
Sundaram LT Tax Adv Fund-Sr II -5.75
Sundaram LT Tax Adv Fund-Sr III Mar-2018 -19.35 0.56
Category: Market Cap Fund        
Sundaram Emerging Small Cap-Sr-I S&P BSE Small-Cap Mar-2018 -18.18 -20.48
Sundaram Emerging Small Cap-Sr-II S&P BSE 250 Small Cap Apr-2018 -19.43 -25.72
Sundaram Large and Mid Cap Fund NIFTY 200 – TRI Feb-2013 15.82 12.66
Sundaram Select Micro Cap-Series XVII S&P BSE Small-Cap Oct-2017 -20.73 -17.07
Sundaram Select Small Cap Series-III Apr-2015 7.56 3.30
Sundaram Select Small Cap Series-IV Apr-2015 7.63 3.30
Sundaram Select Small Cap Series-V Dec-2017 -8.23 -22.90
Sundaram Select Small Cap Series-VI Oct-2017 -5.16 -17.07
Sundaram Small Cap Fund Mar-2015 0.42 3.36
Sundaram Value Fund-II S&P BSE 500 Feb-2016 16.73 13.41
Sundaram Value Fund-III Apr-2018 -5.35 -4.19
Sundaram Value Fund-IX Nov-2017 -8.62 -1.05
Sundaram Value Fund-VII Mar-2017 -9.67 5.15
Sundaram Value Fund-VIII Apr-2018 -9.05 -4.19
Sundaram Value Fund-X Nov-2017 -9.48 -1.05
Category: Sector Funds        
Sundaram Infra Advantage Fund S&P BSE 100 – TRI Feb-2013 11.28 12.48
Category: Thematic Fund        
Sundaram Rural and Consumption Fund NIFTY 500 – TRI Feb-2013 15.86 12.71

(Data as on August 16, 2019)
(Source: ACE MF)

As you can see the from the table above, most of the schemes managed by the fund managers have not been performing well, except a few. So, in terms of their management style, their approach is modest.

The outlook of Sundaram Equity Fund:

The fund house believes that an active multi cap fund can deliver alpha through appropriate choice of stock selection. Stock selection will be done based on inflexion points – Favourable macros, Corporate Fundamentals, Liquidity and Sentiment.

To achieve the objective, the Sundaram Equity Fund will be actively managed by experienced Fund Managers to create well a diversified portfolio, with no market cap bias.

The active management approach will be helpful in enhancing the risk reward ratio by:

  • Dynamically altering cap curve allocations
  • Selecting overarching themes driving economic and earnings growth
  • Active stock selection through bottom-up research

Hence, given the asset allocation, the fortune of the Sundaram Equity Fund will be closely hinged onto the performance of the stocks held in the portfolio. With no restriction towards any market cap, the investment strategy of the fund would be to invest in opportunities across sectors and market cap in line with the Fund Managers’ conviction.

Moreover, the Sundaram Equity Fund holds the flexibility to have a higher allocation to any market cap category to suitably position the portfolio in line with the investment outlook. But constructing the portfolio would be a challenging task for the fund managers in the present scenario. Despite the mid-cap and small caps stocks are available at discounted prices, while the large caps stocks are still at high valuations.  Hence, the active management of stocks remains the key to wealth creation.

Note that being a multi-cap fund, SEF does carry a notch higher risk compared to typical large-cap funds; they are usually less volatile than mid-cap funds.

[Read: Best Multi-Cap Funds That Could Prove To Be Wealth Multipliers In 2019!]

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