Among all small-cap schemes that focus on the quality of companies, L and T Emerging Businesses Fund Direct is one of the best for investing in 2018 and has distinguished itself by performing consistently since its launch in May 2014.

It is one of the most famous small-cap funds in the market. But it has put some restrictions on the fresh investments, on account of the interest of the existing investors.

To know more about this fund, how it fares to existing investor, what is its future and what alternatives do investors have now, read more below.

L&T Emerging Business Fund: A Brief Introduction

Small-cap funds have exponential growth potential and give high returns on investment, but are highly risky and volatile investment instruments.

Click here to invest in L&T Emerging Businesses Fund Direct 

Being a small cap fund, this fund is best suited for investors with a high-risk appetite and who have long investment horizon, say more than 6 years, to get its true reward.

Let us look into various aspects of this fund.

L and T Emerging Fund: Key information

Before start investing in any mutual fund scheme, you should look into some basic key features.

Launch Date 12 May 2014
Fund Category Equity – Small Cap
Plan Type Direct
Rating by Groww 5 Star
AUM (Fund Size) ₹4,286
Riskometer High
Minimum SIP ₹500
Minimum SWP ₹500
Performance w.r.t its Benchmark Has consistently outperformed its benchmark S&P BSE Small Cap TRI since its launch.
Age of the fund 4 years old
Expense Ratio 1.76%
Exit Load If redeemed between 0 Year to 1 Year; Exit Load is 1%;
Type  Open-ended

L&T Emerging Businesses Fund: Objective

The objective of this fund is to generate long-term capital appreciation from a diversified portfolio of predominantly equity and equity-related securities, including equity derivatives, in the Indian markets with key theme focus being emerging companies i.e., small-cap stocks.

According to this fund, emerging companies are businesses which are typically in the early stage of development and have the potential to grow their revenues and profits at a higher rate as compared to the broader market.

The Scheme could also additionally invest in foreign securities.

However, as with any equity mutual fund, there can be no assurance that the investment objective of the Scheme will be realized and the Scheme does not assure or guarantee any returns.

Performance of L&T Emerging Businesses Fund

This fund has given high returns over the years and has consistently outperformed its benchmark. It is a fund with high risk and has given a return of 30.76% since its launch.

Duration Returns
1 year  23.72%
3 years  27.07%
5 years  NA

This fund has beaten its benchmark consistently since its launch. A substantial boost to performance in the last 4 year has earned this fund a very good reputation in the small cap category.

This is one of the most attractive small cap funds in India right now and has been rated high by almost all rating agencies. Although this fund is new in the small-cap category, it certainly made its mark in the market.

The only shortcoming of this fund is that it hasn’t seen really challenging bear markets like the one in 2008 as it made its debut much later.

Also, the only challenge this fund is facing right now is its burgeoning size of AUM, with assets at over ₹4286 crore as of May 2018.

L&T Emerging Businesses Fund Direct: Fund Manager

This fund is managed by:

Mr. Karan Desai since Feb 2017

Education: Mr. Desai has done Bcom from Mumbai University and Msc Investments from University of Birmingham.

Experience: Prior to this he was working with L&T Investment Management, HNI & Institutional, and Accounts & Taxation

Funds Managed:

  1. L&T Arbitrage Opportunities Fund – since Feb 2017
  2. L&T Business Cycles Fund – since Feb 2017
  3. L&T Equity Fund– since Feb 2017
  4. L&T India Large Cap Fund – since Feb 2017
  5. L&T India Prudence Fund – since Feb 2017

Mr. Soumendra Nath Lahiri since Apr 2014

Education: Mr. Lahiri is a B.Tech and PGDM from IIM Bangalore.

Experience: Prior to joining L&T Mutual Fund he has worked with Canara Robeco AMC Co. Ltd., Emkay Investment Managers Ltd, Fortuna Capital, DSP Black Rock Investment Managers Pvt. Ltd.

Funds Managed:

  1. L&T Dynamic Equity Fund – since Nov 2012
  2. L&T Equity Fund – since Nov 2012
  3. L&T India Prudence Fund – since Nov 2012
  4. L&T India Special Situations Fund – since Nov 2012
  5. L&T Infrastructure Fund – since Nov 2012
  6. L&T Tax Advantage Fund – since Nov 2012
  7. L&T Midcap Fund – since Jun 2013

Why L&T Mutual Fund Limited Investments in L&T Emerging Businesses Fund?

A mutual fund scheme typically chooses to stop fresh investments when there is a perceived dearth of investment opportunities and for the interest of its existing investors.

Though all mutual fund AMC aspire for growing assets under management (AUM), as it means more income through management fees, which are charged as a percentage of every rupee managed, many cannot sustain a big AUM.

Therefore, sometimes, the fund may choose to sit on the cash till the market opens up for sound investments.

L&T Mutual Fund temporarily suspended inflows in L&T Emerging Businesses Fund with effect from December 11, 2017.

This suspension included, all fresh subscriptions including new switch-ins, systematic investment plans (SIPs), and Systematic transfer plans (STPs) and the terms of restrictions are:

  1. All fresh applications for subscriptions / switch-ins in the scheme amounting to more than ₹ 2,00,000 per day per investor;
  2. New registrations under the STPs into the Scheme of a single installment amounting to more than ₹2,00,000.

This move did not have any negative impact on the existing investments as seen in the performance of L&T Emerging Business Fund Direct after the announcement. In fact, it is in the best interest of the existing investors.

What to Do When Mutual Funds Put Investment Restrictions?

This is not as bad as conditions of restrictions imposed in case of other small cap mutual funds like SBI Small and Mid cap fund or Reliance Small Cap fund.

You can still invest an amount of less ₹ 2,00,000 per day – which is a large amount, and slowly grow your wealth.

In fact, SIP and STP are the best modes of investing in any equity oriented mutual funds as compared to lumpsum

SIP is one of the best ways to invest and tested method of minimizing risk and yet enjoying good returns, by regular, periodic investment, over a long horizon.

Read More: All About SIP – Systematic Investment Plan

Most people today use SIP as a method of investment in mutual funds. Once you have grown accustomed to SIPs, and have a surplus of funds to invest, you could explore the option of STPs.

STP helps you to transfer a fixed amount from a particular mutual fund scheme (usually a debt fund) to another (usually an equity oriented scheme) within the same fund house. When you are setting up an STP, you are actually instructing the fund house to sell a part of your investment in a debt fund and invest the money in another scheme.

Read More: 5 Reasons Why STP is Better than Investing Lump Sum

The basic idea behind an STP is to earn a little more on the lump sum amount while it is being deployed in equity-oriented schemes. Debt funds excel over the normal savings bank account in terms of return on your investments.

Most financial advisers and a large number of investors prefer investing in equity mutual funds through SIPs and STPs.

But in case you want to invest a lump sum or an amount higher than ₹2,00,000 in the small-cap mutual fund category, it is best to pick alternative schemes that match your risk profile and investment horizon.
L&T Emerging Business Fund Direct is not the only well-performing mutual fund in small-cap category.

Best Funds to Invest Instead of L&T Emerging Businesses Fund – Direct

Where to invest instead of L&T Emerging Business Fund Direct? There are some good alternate options in the small-cap category that have shown good performance in recent times.

1. HDFC Small Cap Fund – Direct

This fund has given high returns over the years and has consistently outperformed its benchmark. It is a fund with high risk and has given a return of 23.74% since its launch.

Here is the key information about HDFC Small Cap Fund – Direct

Launch Date 01 January 2013
Fund Category Equity – Small Cap
Plan Type Direct
Rating by Groww 5 Star
AUM (Fund Size) ₹2,152
Riskometer High
Minimum SIP ₹500
Minimum SWP ₹500
Performance w.r.t its Benchmark Has consistently outperformed its benchmark NIFTY Smallcap 100 TRI since its launch.
Age of the fund 5 years old
Expense Ratio 0.93%
Exit Load If redeemed between 0 Year to 1 Year; Exit Load is 1%;
Type  Open-ended

Returns per annum over the years from this fund are:

Duration Returns
1 year  31.49%
3 years  24.28%
5 years  26.55%

While the fund has undoubtedly scored on the performance front, it has also managed to keep its risk metrics lower than the benchmark thereby resulting in an improved risk-reward profile.

The investment objective of the scheme is to generate long-term capital growth from an actively managed portfolio of equity and equity-related securities including equity derivatives

2. Sundaram SMILE Fund – Direct

This is a Small Cap Equity Oriented Mutual Fund launched on 02 January 2013. It is a fund with a high risk and has given a return of 23.67% since its launch.

Here is the key information about Sundaram SMILE Fund – Direct

Launch Date 01 January 2013
Fund Category Equity – Small Cap
Plan Type Direct
Rating by Groww 4 Star
AUM (Fund Size) ₹1,481
Riskometer High
Minimum SIP Not Supported
Minimum SWP ₹500
Performance w.r.t its Benchmark Has consistently outperformed its benchmark S&P BSE Small Cap TRI since its launch.
Age of the fund 5 years old
Expense Ratio 1.78%
Exit Load If redeemed bet. 0 Year to 1 Year; Exit Load is 1%;
Type  Open-ended

Returns per annum over the years from this fund are:

Duration Returns
1 year  11.44%
3 years  15.35%
5 years  29.24%

The scheme seeks to achieve capital appreciation by investing predominantly in diversified stocks that are generally termed as small-cap stocks.

Though the performance of this fund is low as compared to its peer in one year time period, this small-cap fund is ideal for long-term investment and have potential to grow higher.

3. Aditya Birla Sun Life Small & Mid cap Fund Growth

This is a Small and Mid Cap Equity Oriented Mutual Fund launched on 01 January 2013. It is a fund with a high risk and has given a return of 25.08% since its launch.

Here is the key information about Aditya Birla Sun Life Small and Mid Cap Fund – Direct

Launch Date 01 January 2013
Fund Category Equity – Mid Cap
Plan Type Direct
Rating by Groww 5 Star
AUM (Fund Size) ₹1,866
Riskometer High
Minimum SIP ₹1000
Minimum SWP Not Supported
Performance w.r.t its Benchmark Has consistently outperformed its benchmark NIFTY Mid cap 100 since its launch.
Age of the fund 5 years old
Expense Ratio 1.23%
Exit Load If redeemed bet. 0 Year to 1 Year; Exit Load is 1%;
Type  Open-ended

Returns per annum over the years from this fund are:

Duration Returns
1 year  13.58%
3 years  22.07%
5 years  29.31%

The objective of this scheme is to generate consistent long-term capital appreciation by investing predominantly in equity and equity related securities of companies considered to be small and mid cap.

The scheme may also invest a certain portion of its corpus in fixed income securities including money market instruments, in order to meet liquidity requirements from time to time.

Conclusion

You would be aware that small and mid-cap funds are extremely risky. While these funds have the potential of generating supernormal returns, they can lead to deep losses when the market takes a turn.

If you want to invest an installment amount of more than ₹ 2,00,000 or a lump sum invest, you can choose alternative best mutual fund in the small-cap category and meet your investment goals.

To look at some of the best performing funds from every category of mutual funds, check out Groww 30 best mutual funds to invest in 2018.

Happy Investing!

Disclaimer: the views expressed here are of the author and do not reflect those of Groww.