Rational Fund

27/08/2017

http://www.rationalfund.in/articles/

Our Definitions for different segments of Market Micro Cap: Market Cap between Rs 1500 crores and Rs 50 crores Small Cap: Market Cap between Rs 5000 crores to Rs 1500 crores Mid Cap: Market Cap between Rs 5000 crores to Rs 20000 crores Large Cap: Market Cap more than Rs 20,000 crores Micro Cap…

27/08/2017

https://www.linkedin.com/in/rationalinvesting/

View Gaurav Singh’s professional profile on LinkedIn. LinkedIn is the world's largest business network, helping professionals like Gaurav Singh discover inside connections to recommended job candidates, industry experts, and business partners.

27/08/2017

FAQSHome / FAQs

1. What is Portfolio Management Services (PMS)?

Portfolio Management Service is a tailor made professional service for investments objective of different investor classes. The Investment solutions provided by PMS cater to specific segment of clients.

2. Who is an ideal PMS investor?

Clients can be Individuals or Institutional entities with high net worth.

3. What is the minimum investment in PMS?

The minimum investment amount in PMS is Rs 25 lakhs.

4. What is the time horizon of investments in PMS?

For our PMS we recommend a minimum time horizon of five years.

5. What are the modes through which I can make investment in PMS?

Apart from cash, the client can also hand over an existing portfolio of stocks, bonds or mutual funds to a Portfolio Manager that could be revamped to suit his profile. However the Portfolio Manager may at his own sole discretion sell the said existing securities in favour of fresh investments. We prefer that clients sell their shares and provide us with cheque.

6. What is the tax treatment in PMS investment?

The tax liability of a PMS investor would remain the same as if the investor is accessing the capital market directly. However, the investor should consult his tax advisor for the same. The Portfolio Manager ideally provides audited statement of accounts at the end of the financial year to aid the investor in assessing his/ her tax liabilities.

7. What are benefits of PMS?

The major benefit of our PMS is that it invests in those companies where mutual funds cannot invest because of low float despite stellar performance of these companies. Without systematic research investors cannot identify these companies.

8. Are there risks associated with PMS investments?

There are risks. For our PMS there would be more volatility as we invest in smaller companies. We think however that such volatility presents opportunities. However, if the investors withdraw money at time when share prices are lower losses would be incurred. If they invest they might benefit.

27/08/2017

LETTER TO INVESTORHome / Letter to Investor
Letter to share market and equity mutual fund investors

This letter is addressed to existing investors in share market and equity mutual funds only. If you would like to improve upon your returns from stock markets and have an investment horizon of minimum five years please read on.
We present an opportunity for you to invest in stock market through Portfolio Management Scheme (PMS). Our portfolio strategy has outperformed all equity mutual funds during last five years. We believe that our strategy is best suited to take advantage of current market conditions and should continue to outperform most if not all mutual funds over next five years. We invite you to take part in this opportunity.

Strategy:

We invest largely in micro caps and small cap companies.
(We define large cap as those companies that have a market value of more than Rs 20,000 crores. Mid cap companies as those that have a market value (cap) between Rs 5,000 to Rs 20,000 crores. Small cap companies as those that have a market value below Rs 5,000 crores and micro cap as those small caps with valuation below Rs 1,000 crores.)
Micro cap is an under researched space and will remain so because institutional investors hardly invest in this space. The reason behind this lack of interest is small free float and low liquidity. A company with market cap of around Rs 500 crores has quite often a free float market cap of less than 200 crores, since typically promoters hold 50% to 75% shares. Only share that are not with promoters can potentially be available in market. If a fund with a corpus of Rs 5,000 crores has to invest even 1% of its corpus in such a company it would involve buying 25% of its free float market cap. It would be hard to buy that kind of stake without moving the share price significantly. It would also be hard to sell off stake without incurring significant losses. An order of Rs 1-2 crores in a day can move the share price of such company by at least 6-7% if not more. Buying 25% stake could move the share price 2-3 times. Therefore mutual funds and FIIs do not generally enter this space. Under researched and under invested micro cap is our favourite investment universe. Small cap also fall almost in same category and have many interesting investment options.
Finding a well managed small cap in decent sector at reasonable valuation can be a challenging task. Our life is probably made easy by lack of institutional participation in micro caps and to an extent in small caps. That produces reasonable valuation for some good companies. This space in short run can see significant volatility and a temporary quotational loss. Shares of companies might trade at a lower price than one has bought for no good reason. We do not see that possibility as a disadvantage. It is to be expected and taken advantage of. Irrational fear throws up most attractive opportunities in stock market. If one has liquidity one can take advantage of irrational fear by buying more. If there is no liquidity there is nothing to worry, only wait. If stocks have been bought at right price and companies perform well returns would be realized. So the catch here is that only that type of capital should be invested which can be left invested for long period of time.
This is what we have achieved in last five years with our portfolio strategy Rs 100 invested in our portfolio on 1 Jan 2012 became Rs 560 by Dec 31, 2016 giving annual return 41.1 per cent after all taxes and our fees. In this same period Nifty returned 13.3 per cent. While the best mutual fund DSP Black Rock Micro cap Fund returned 31.1 per cent before fees. Effective return for mutual fund would be at least 2 per cent lower after calculating expenses. In the same period decent performing mutual funds have delivered 15-16% returns before costs. We have done alright.

[Disclaimer: Past performance is not an indicator of future results, value shown is the end of year value]
Fund value =100 on 1st Jan 2012
SEBI registration and requirements
We are SEBI registered entity and among 200 odd entities given permission by SEBI to engage in PMS. Our registration number is INP000004698. We report monthly to SEBI the details of our client’s accounts. Kotak Bank is our custodian where shares of each investor are kept separately.
As per SEBI requirements a client needs to start with a minimum investment of Rs 25 lakhs for investing in PMS.
If you are interested in investing with us please drop in a mail or call at
Best Regards,
Gaurav Singh
Fund Manager
Rational Fund
Altitude Capital Advisors Private Limited

27/08/2017

INVESTMENT STRATEGYHome / Investment Strategy
Select Micro Caps offer best value in Indian market

We define large cap as those companies that have a market cap of more than Rs 20,000 crores. Mid cap companies as those that have a market cap between Rs 5,000 to Rs 20,000 crores. Small cap companies as those that have a market cap below Rs 5,000 crores and micro cap as those small caps with valuation below Rs 1,000 crores.
Small cap especially micro cap is an under researched space and will remain so because institutional investors like mutual funds and FIIs hardly invest in this space. The reason behind this lack of interest is small free float and low liquidity. A company with a market cap of around Rs 500 crores has quite often a free float market cap of less than 200 crores. If a fund with a corpus of Rs 5,000 crores has to invest even 1% of its corpus in such a company it would involve buying 25% of its free float market cap. It would be hard to buy that kind of stake and even harder to sell it off. An order of Rs 1-2 crores in a day can move the share price of such company by 6-7%. Therefore mutual funds and FIIs do not generally enter this space. Under researched and under invested micro cap is our favourite investment universe. Small cap also fall almost in same category and have many interesting investment options.
We have a minimum five year investment horizon when we invest in stocks. As Warren Buffett says “Stock markets are voting machines in short run and weighing machine in long run”. While in short run share prices can move based on irrational interest or disinterest of the herd in long term it would be earnings and earnings alone that would move or sustain share prices. So if we have a reasonably priced share of company that increases its EPS by 10 times in 10 years we can hope to see a share price increase 10 times or more in the same time. A well managed small cap in decent sector has a better chance of doing it than a large cap which might be constrained by size of market.
Finding a well managed small cap in decent sector at reasonable valuation is a somewhat challenging task though. Our life is probably made easy by lack of institutional participation in micro caps and to an extent in small caps. That produces reasonable valuation for good some good companies. This space in short run can see significant volatility and a temporary quotational loss. Shares of companies might trade at a lower price than one has bought for no good reason. We do not see that possibility as a disadvantage. It is to be expected and taken advantage of. Irrational fear throws up most attractive opportunities in stock market. If one has liquidity one can take advantage of irrational fear by buying more. If there is no liquidity there is nothing to worry, only wait. If stocks have been bought at right price and companies perform well returns would be realized. So the catch here is that only that type of capital should be invested which can be left invested for long period of time.
Demonetization is on track to deliver results that we had talked about in last article. Though the trends are not completely conclusive yet and we have to wait for final outcome. The probability of all events that we had talked about has increased. There has been an increase direct tax collection. It could lead to lesser taxation in future. Equity markets and financial instruments are attracting much cash flow. Interest rates have come down significantly with banks reducing MCLR rates by 90 basis points. More transactions even at wholesale level are through being carried out by banking channels. All these are positive signs for economy and for majority of stocks listed in stock markets. Good thing is that many stocks have corrected significantly in all segments. It is time to take advantage of these prices.

26/01/2017

15/08/2016

One individual may die for an idea; but that idea will, after his death, incarnate itself in a thousand lives. That is how the wheel of evolution moves on and the ideas and dreams of one nation are bequeathed to the next.

Netaji Subhash Chandra Bose