WhiteOak Capital's new Small Cap Active FoF: How it will work and the risks involved

There are as many as 36 active small-cap funds as of today, making it challenging for investors to pick the winner fund for their portfolios. An upcoming Fund of Fund (FOF) scheme from WhiteOak Capital Mutual Fund aims to solve this challenge for investors by having a dedicated fund manager, who will identify the winning small-cap funds and deploy investor's funds in them. The investor will not have to worry about switching non-performing schemes, as it will be done by a dedicated manager. Sounds interesting?

This article explains more details about this upcoming fund, how it will work and the risks an investor may face by investing in it.

The scheme

WhiteOak Capital Mutual fund recently filed draft papers with SEBI for this scheme named WhiteOak Capital Diversified Equity Small Cap Active FOF". The stated objective of the scheme, as per the draft paper, is to "generate long term capital appreciation by investing in units of equity-oriented small cap mutual fund schemes." However, there is no assurance that the investment objective of the Scheme will be achieved.

The scheme will track Nifty Smallcap 250 TRI, and offer both direct and regular plans. Both plans will have only growth options at the start. The scheme will have an exit load of 1% if units are redeemed within one year from the date of allotment.

As per the draft paper, the scheme may follow a dynamic allocation approach across selected underlying small-cap schemes based on various factors, including:

• Relative valuations within the small-cap segment;

• Market cycle and liquidity conditions;

• Fund manager track record and investment process;

• Portfolio diversification and overlap analysis;

• Risk-return characteristics of underlying schemes;

• Sectoral opportunities and earnings outlook; and

• Macroeconomic and regulatory developments.

"The Scheme may also adopt a staggered deployment strategy and periodic portfolio rebalancing to manage market volatility and optimise long-term risk-adjusted returns. Rebalancing may be undertaken based on changes in market conditions, the relative attractiveness of underlying schemes, portfolio diversification considerations, or risk management requirements," the draft papers say.

The FOF will be managed by Ashish Agrawal, who has over 18 years of experience in financial markets. He is currently managing 18 schemes of WhiteOak Capital Mutual Fund, including flexi-cap, midcap, marge-cap and multi-asset allocation funds etc.

Bhavin Patadia and Nikunj Sampat are other fund managers. Patadia has over 17 years of experience and he currently manages WhiteOak Capital Arbitrage Fund and WhiteOak Capital Equity Savings Fund; Sampat has over 15 years of experience.

How will the scheme work?

As this is a first-of-its-kind scheme, there can be lot of confusion among investors about it. Ashish P Sommaiyaa, CEO, WhiteOak Capital, explained the working of the upcoming scheme on X (formerly Twitter) on Thursday, September 3, 2026.

"It’s a multi manager fund. It will invest in direct plans of small cap funds. It’s a new initiative. We have hired a multi manager FOF manager who has long experience of having worked in this space in USA over last 2 decades," Sommaiyaa said.

The WhiteOak Capital's CEO further said, "In a professionally managed multi manager FoF structure where a manager with relevant experience is performing quantitative analysis for shortlisting and following it up with qualitative assessment – the probability of selecting the worst or most violent / volatile funds goes down. There are probably 3 dozen smallcap funds, probability of selecting winners goes up, staying or disinvesting can also be more scientific than what large number of individual investors will be able to perform themselves."

According to Sommaiyaa, the FOF may be a tax-efficient option for investors as they would not have to redeem from a small-cap fund to invest in another.

"No need to start and stop SIP if you do it in a FoF because you can continue your SIPs in the FoF, while the FoF may change or calibrate and recalibrate exposure to underlying funds based on periodic assessment. All this in a tax efficient manner because if you redeem from one small cap and get into another, you pay tax, the FoF doesn’t," he said.

The scheme will probably never be the top-performer in the small cap fund category. However, it won't be the worst-performer either, according to Sommaiyaa. "In terms of performance, the small cap FoF will never be best or top performer when compared to smallcap peers but it will not be third quartile or bottom quartile even. If it works well, it will be above average, landing up in second quartile at most times and it will have lower volatility of alpha as compared to any individual fund," he said.

What about risks?

Like any equity mutual fund scheme, this FOF will also not be without risks. Here are some of the risks that an investor may face, as per the draft papers

• Investors will have to bear the recurring expenses of the fund-of-funds (FoF) scheme in addition to the expenses of the underlying schemes in which the FoF invests.

• The scheme's performance will depend on the performance of the underlying schemes.

• Any change in the investment policy or fundamental attributes of the underlying schemes may affect the FOF's performance.

• Portfolio disclosures of the FOF will largely be limited to details of the underlying schemes and its investments in debt and money market instruments.

• The scheme-specific risk factors of the underlying schemes will also be applicable. This means, investors intending to invest in the FoF must read and understand the risk factors of the underlying schemes.

• The success of the FOF will depend on the investment managers of the underlying schemes.

• As investors would incur expenses at both the FoF level and the underlying scheme level, returns may be impacted and could, at times, be lower than those available through direct investment in the underlying schemes.

The small-cap FOF will not pick small-cap stocks like other small-cap schemes. Rather, it will actively pick fund managers. "A multi manager fund or a manager of managers is more concerned with analyzing styles and portfolios and assembling a combination; not researching underlying stocks because we don’t aim to tell those managers what to buy. We are concerned with each of them at portfolio level and with aggregates," Sommaiyaa said.