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

Published on / By M. Pattabiraman Twitter: @pattufreefincal

Published: March 30, 2020 at 2:01 pm

Last Updated on March 14, 2021

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.

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
Use our Robo-advisory Excel Template for a start-to-finish financial plan! Now with a new demo video! ⇐ More than 700 investors and advisors use this!
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 2600 investors and advisors are part of our exclusive community! 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! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! ⇐ More than 600 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! 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 you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
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!
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 three print books, You can be rich too with goal-based investing (CNBC TV18), Gamechanger, Chinchu Gets a Superpower! 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 three million readers a year (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