What to note about Reliance Mid & Small Cap Fund

Reliance Mid and Small Cap has not been having a great run in recent times. It underperformed the category average last year and its current 1-, 3-, and 5-year performances hover around the average. That does not make it a bad fund. Our analyst lists a few points about the fund and explains here why he gives it a 'Neutral' rating.

• Fund managers

Fund manager Samir Rachh joined Reliance Mutual Fund in October 2007 as senior research analyst. Subsequently, he became the co-manager of this fund (along with Sunil Singhania) in September 2010 and took over as a lead manager late 2014. Singhania continues to co-manage the fund, although his role is limited to overseeing the investment function and guiding Rachh when a ‘major’ investment decision is to be made.

• Pure play on smaller fare

Rachh runs the fund as a pure small/mid-cap one, thereby distinguishing it from Reliance Growth, where a bigger allocation is made to large caps. Roughly 80-90% of the fund’s assets are invested in small/mid-caps versus 70% for a typical peer. Particularly, small caps account for nearly half of the assets versus 30% for a typical peer.

• Type of stocks

The investment team relies on research and idea generation originated in-house rather than taking research from outside the firm. Rachh typically scouts for companies that he believes can double profits in three to four years. Also, he seeks business scalability and target companies that can increase sales at a faster pace than peers.

• Stand-out portfolio

The bottom-up approach typically results in a portfolio that significantly differs from that of a typical peer. For instance, in 2011 the managers’ conviction in the auto industry’s growth prospects saw the fund overweight in consumer cyclicals (26%) versus the benchmark S&P BSE Midcap Index (9%) and the category average (16%). Similarly, from 2012 through 2013, the fund was overweight the basic materials sector vis-à-vis both the benchmark and the category average. From 2014 through 2015, it was overweight the consumer defensive sector compared with peers.

Why the fund has been given a ‘Neutral’ rating by our analyst