DSP Small Cap Fund Review (DSP Micro Cap Fund)

Published: August 6, 2017 at 11:10 am

Last Updated on March 9, 2019

The way many investors are reacting to the performance of DSP BlackRock Micro Cap Fund’s “recent performance” is baffling, to say the least, and betrays a lack of method in fund selection, portfolio construction (what is that?) and a lack of understanding of reward and ruin in the equity markets. In this post, I review the performance of DSP BlackRock Micro Cap Fund now known as DSP Smallcap fund

In my fund reviews, I usually only consider long-term past performance (3Y+). I will make an exception for this special fund and use the Fingerprinting Tool for Analyzing Mutual Fund Performance.

First, let us consider why some investors are concerned. This Value Research screenshot says it all.

Using the movable scrollbar at the bottom, you can see that the fund has a poor run of form for the last year or so. If you plot its NAV from Mar 4th, 2016 to Aug 4th, 2017,  the outperformance gains have vanished.


Well, it is too short a time to judge and all that sort of thing. The problem is that such logic cannot be appreciated by someone who sees 101% return in 2014 from this fund and assumes that history will repeat. So let me try the fingerprinting tool.

How does fingerprinting work?

Suppose I have the NAV data of a fund and its benchmark.

1 I calculate monthly return of both

2 Find out the difference between fund return and index return when the index return was positive. Call this up-market return.

3 Do the same when the index return was negative and call it down-market return

4 Take the six-month or one-year average of up and down market returns on rolling basis

5 Plot Up-market return (Y axis) vs Down market return (X axis) to create this kind of grid.

mutual-fund-fingerprint

There are now four quadrants with four different fund performances. Obviously, we want funds that have data points in the top left quadrant and bottom left quadrant.

The diagonal line is a reference which separates ‘good’/acceptable data points in the top triangle and the borderline/’bad’ data points in the bottom triangle.

DSP Small Cap Fund vs BSE Small Cap TRI

This is the performance fingerprint of the fund with its benchmark. I have marked the years below. In the tool (download it from the above post), you can do a more detailed date analysis.

Look at the remarkable outperformance of the fund in 2014. My guess is that many investors (and advisors?) flocked to this fund looking at this. The fund had a (relatively speaking) “bad patch” in 2015 but has since recovered quite well.

Well, the current performance “is not as spectacular” as 2014, but to expect a repetition is immature and irrational.

The big problem with equity investing is that most people do not have enough money to invest (the sure shot way to build wealth) and wish to compensate for it via returns. They ought to keep in mind that history does not repeat itself, it rhymes (Mark Twain)

DSP Small Cap Fund AUM Breakup

From AMFI, we can see that as on June 2017,

8.11% of AUM comes from retail investors in top 15 cities (direct plan)

3.4% from retail investors in B15 cities (non-major cities) (direct plan)

43% of AUM from top 15 cities (commission plan)

20% of AUM from B15 cities (commission plan)

17% of AUM from high net worth individual in T15 cities (commission plan)

A high net worth individual is one who can invest 25 lakhs year.

T15: top 15 cities that provide profits to MF amcs.

B15: all the rest. Distributors get more commission for selling products here.

Let us please not assume that only those who invested in direct plans are agitated about its recent performance. We need a proper crash for a system reset.

Should I invest in such funds?

There is nothing wrong with having “some” exposure to mid-caps, small-caps and micro-caps. The trouble with these stocks is they have extremely volatile. I would think given the constraints, the DSP Microcap fund manager has done a fantastic job so far. The fund was right to close subscriptions. It is important to remember that multi baggers picks do not sprout all the time. Heavy exposure to funds in this category is suitable only for truly long term goals – 15Y+. For all other time durations, you can add a pinch (if desired). This way, even if it fails, it will not hurt as much.

Seeing the comments about this fund in various forum, it is clear that star rating and the drop of a star are crucial fund selection and performance-worry factors.  Microcap fund investors seem to have patience in the micro scale.

I am an investor in this fund, what should I do?

A clear risk management strategy is essential. I see nothing wrong with this fund.

If you can handle downs and ups (more important) and can afford to be patient for years during a sideways market, you can stick to this or such funds.

Otherwise, have a tactical asset allocation strategy in place within the equity space

If you feel the market is overheated (by whatever yardstick), move to large caps. If you think the market has fallen significantly move to lower caps. This way you can dynamically rebalance. This is a risk reduction strategy and not a return enhancement strategy.

My point is, if we have a plan, we will not worry about short-term fall in underperformance.

Those who choose by star ratings are bound to be confused by them. Never pick a fund by its stars and past 1Y or 2Y performance.

Disclosure: Not an investor in this fund or this category or funds. My equity portfolio should be at least 60% large cap.

Do share if you found this useful

We now publish both equity fund and debt fund (+ hybrid fund) screeners each month!
Use our Robo-advisory Excel Template for a start-to-finish financial plan! Now with a new demo video!  More than 415 investors and advisors use this!
Unlock the secrets of successful financial advisors and entrepreneurs with our new course!
My new book for kids: “Chinchu gets a superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both boy and girl version covers of Chinchu gets a superpower.
Most investor problems can be traced to a lack of informed decision making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, if we had to groom one ability in our children that is key not only to money management and investing but for any aspect of life, what would it be? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parent’s plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Did you know? We have more than 1000+ videos on YouTube to explore! Join our YouTube Community!

Join our courses in exclusive Facebook Groups!

  • 550+ members are now part of our new course: How to get people to pay for your skills! (watch 1st lecture for free). Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show how to achieve by showcasing your skills and building a community that trusts you and pays you!
  • Goal-based portfolio management! Join 2220+ members and get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free!  One-time payment of Rs. 3000 only. No recurring fees! Life-long access to videos (10+ hours content)  in an exclusive Facebook Group! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.

Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish mutual fund screeners and momentum, low volatility stock screeners .every month.
About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations based on money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements, write to pattu [at] freefincal [dot] com
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions, seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)
Free android apps