SBI & DSP Small Cap Funds re-open lump sum investments: Should You Invest?

DSP Small Cap Fund and SBI Small Cap Fund now to allow lump sum investments. What you need to know before you invest

Open sign in a store signifying SBI & DSP Small Cap Funds re-open lump sum investments

Published: March 30, 2020 at 2:01 pm

Last Updated on

DSP Small Cap Fund and SBI Small Cap Fund have revoked the suspension of lump sum purchases effective 1st April and 30th March 2020 respectively. Here is what you need to know if you are considering an investment.

This the circular from SBI MF and this is the circular from DSP MF. Readers may recall in Aug 2019 we listed six small cap mutual funds that have consistently beaten mid cap and small cap benchmarks in terms of both risk and reward. Both SBI and DSP mutual funds were part of that list.

We had separately reviewed both funds as well. In the SBI small cap review, we had pointed out that SBI Small and Midcap Fund was converted to a small cap fund from May 15th 2018. Earlier it defined small cap as the bottom 100/500 in terms of market cap and could invest between 50 -70% in small caps.

It also had a capacity constraint clause of 750 crores.  As a result, the scheme closed for subscription in October 2015 and re-opened via SIP route only since May 2018. The scheme can now invest 65-100% in small caps defined as bottom 250 stocks in terms of market cap. The benchmark for the fund remains S&P BSE Small Cap Index. The fund has a good track record.

In our review of DSP Small Cap (previously known as DSP Microcap Fund) we noted that when it was DSP Micro Cap, it had the mandate to invest 65%-100% of its assets in stocks that had a free-float market cap lower than the top 300 shares. When it became DSP Small Cap in early 2018, it could invest the same portion in stocks beyond the top 250.

Join our 1500+ Facebook Group on Portfolio Management! Losing sleep over the market crash? Don't! You can now reduce fear, doubt and uncertainty while investing for your financial goals! Sign up for our lectures on goal-based portfolio management and join our exclusive Facebook Community. The 1st lecture is free! Did you miss out on the lockdown discount? You can still avail it! Follow instructions in the above link!

From just ~ 2,200 Crores in Jan 2016, it went to ~ 5000 Crores in just a year (when its return was only 12%). This prompted the AMC to stop fresh investments in Feb 2017. From April 2019, the fund has reopened investments via SIP and STP. Once the darling of young mutual fund investors who looked no further than trailing returns it slid from 5 to 3 stars. We had however shown that the fund has been a consistent performer.

What should investors do? With a significant fall in equity markets, both SBI and DSP have decided this is right to buy small caps at lower valuations and have re-opened for lump sum purchase.

I have always maintained that investors should avoid small cap funds. These crash down as fast as they move up and often move sideways for months end on. So over the long term, the additional risk taken is not compensated enough.

A good multi-cap fund has all the small cap exposure a typical retail investors needs. Those who wish to invest in small cap funds must be prepared to keep an eye one valuations or use technical indicators like 200-day moving averages and be ready to pull out money. AMCs closing subscriptions is also an indication to exit. Refer to our earlier study: How to book profits from mid cap and small cap funds tactically

If you are ready to make such periodic entry and exit and know how to evaluate the efficiency of your actions, you can invest in these funds when they open for lump sum investment after fully appreciating the risks involved.

Do share if you found this useful
Join our 1500+ Facebook Group on Portfolio Management! Losing sleep over the market crash? Don't! You can now reduce fear, doubt and uncertainty while investing for your financial goals! Sign up for our lectures on goal-based portfolio management and join our exclusive Facebook Community. The 1st lecture is free! Did you miss out on the lockdown discount? You can still avail it! Follow instructions in the above link!

Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!)

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 topics of money management. 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 on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors 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. We operate in a non-profit manner. All revenue is used only for expenses and for the future growth of the site. 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 kind of paid articles, promotions or 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 investingThis book is meant to help you ask the right questions, seek the right 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 low cost! Get it or gift it to a young earner

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new

This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when traveling, how traveling 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 Apps for your Android Phone

Comment Policy

Your thoughts are the driving force behind our work. We welcome criticism and differing opinions.Please do not include hyperlinks or email ids in the comment body. Such comments will be moderated and I reserve the right to delete the entire comment or remove the links before approving them.