India's first micro-cap fund launched; to track Nifty Microcap 250 Index

Amid the rising investor interest in smallcap funds, Motilal Oswal AMC has announced India's first micro-cap fund, which will invest in companies that are even smaller than the smallcaps. The passive fund will track the Nifty Microcap 250 Index, which measures the performance of the top 250 companies excluding those already present in the Nifty 500 constituents.

The MF industry classifies the top 100 stocks by market capitalisation (m-cap) as largecaps. The next 150 is considered as midcaps and the the susequent 250 as smallcaps. Thus the present MF universe mostly comprises the top 500 stocks.

The stocks in Nifty Microcap 250 Index are generally those that rank between 501 to 750 in the m-cap rankings.

According to the AMC, the index has outperformed the Nifty50 and the Nifty Smallcap 250 in the last 15 years with annualised returns of 12.9 per cent.

"Microcap companies which comprise approximately 3 per cent of the total market capitalization of listed stocks, poses distinct characteristics that make them intriguing investment prospects. These companies are known for their agility, niche market focus, and strong promotor-driven dynamics," the AMC said in a press release.

"Microcaps have compelling track record of delivering higher returns compared to its counterparts, albeit at a higher risk. Investors are encouraged to consult their financial advisors," said Pratik Oswal, Head of Passive Funds, Motilal Oswal AMC.