Baroda BNP Paribas (OTC:BNPQY) has launched a new small-cap focused fund, the Baroda BNP Paribas Small Cap Fund, on Tuesday. This move comes in response to the consistent outperformance of small-cap stocks over their large-cap counterparts.
Despite higher trailing Price-to-Earnings (P/E) ratios, the fund sees growth potential based on historical small-cap boom cycles. It plans to allocate over 65% of its assets to small-caps, adopting a sector-agnostic approach for stock selection. This strategy aims to ensure portfolio diversification, a crucial aspect given the volatility associated with small-cap investments.
The fund recommends that investments should be made after significant market declines, considering the inherent volatility of small-cap stocks and the aim to avoid entry during bullish market phases. This advice is particularly relevant for first-time investors who are encouraged to opt for the Systematic Investment Plan (SIP) route. Such an approach ensures that their investments align with their overall equity portfolio.
While some funds lean towards cyclical sectors in their portfolios, the preference is often given to funds with a track record spanning an entire market cycle. As such, the Baroda BNP Paribas Small Cap Fund enters the market as an untested new entrant. Its performance will be closely watched by investors and analysts alike, as it navigates through different market cycles with its focus on small-cap stocks.
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