DSP BR Microcap Fund Stops fresh investments – Should you continue your SIPs?
Couple of days back, DSP BR Mutual fund announced that it would stop fresh investments from investors in one of its fund, DSP BR Microcap Fund w.e.f. 20th February, 2017. This is one of the best and top performing smallcap funds. Mutual Fund investors would have got surprised with such decision. Why DSP BR Microcap fund stopping fresh investments? If you are investor of this fund, should you really worry about this? Should you continue your SIPs in DSP BR Blackrock Fund? What are the factors that affected DSP BR to take such decision?
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DSP BR Microcap Fund Stops fresh investments from investors
DSP Blackrock Mutual fund announced this week that it would all stop all fresh investments into its small cap fund DSP BR Microcap fund w.e.f. 20th February, 2017.
This is applicable for all fresh investments in the form of lumpsum, switches, Systematic Transfer plan(STP), Dividend Transfer Plan (DTP) which are registered after 20th February, 2017.
Existing SIP, DTP, STP and switches which are already registered on or before 20th February, 2017 would continue to operate and such fresh investments through them would continue. Means if your existing SIP’s would continue in normal way.
What are the reasons indicated by DSP Blackrock Mutual Fund management about this stopping fresh investment into its small cap fund?
Fund Manager of DSP BR Microcap fund, Sambre said, “While we continue to find interesting investment opportunities for the fund to invest in, its current size poses the bigger challenge of liquidity. It is challenging to incrementally build positions, i.e. to increase stock weightage of companies to a meaningful size in the portfolio.”
Talking about this announcement, DSP BR, Head – Sales, Marketing & E-Business, Aditi Kothari Desai said, “Having less than desired weightage in stocks that the fund invests in, can limit the fund’s ability to generate returns in the future. Hence, in the interest of existing investors, we have taken a decision to stop accepting fresh investments – both via lumpsum and SIPs.”
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What has really happened?
DSP BR Microcap fund is one of the top performing mutual funds. The fund has grown at larger speed in the last 3 months post demonetization.
Smallcap and Midcap funds face challenges especially when they are growing at faster pace than anticipated. Fund Manager cannot invest the money being received month on month in small cap funds as they would be high risk. For the funds received over a period of time, fund manager can efficiently manage and invest in growing stocks.
Smallcap and midcap funds poses high risk, as they invest in small and mid sized companies. During market crash, smallcap and midcap stocks would be hammered, hence small cap or midcap funds see huge fall in its NAV.
Indian Stock Markets has reached peak level as SENSEX is now over 28K points. Stock markets may take correction any time. If correction happens, small-cap stocks takes huge beating. In such circumstances, taking large fresh investments and investing at high stock price may downgrade the stock performance.
Is this situation unique only for DSP BR Microcap Fund?
No. Mutual fund companies adopt these strategies to safeguard existing investor money during specific times. If huge cash flows comes to mutual fund schemes, these needs to be invested by fund manager in coming weeks. If markets are already reached peak, no point in investing large sums in such small cap stocks. Currently post demonetization, mutual fund schemes received huge inflows which is also big risk for such funds. Hence MF companies adopt such approach.
DSP BR Microcap fund has earlier stopped accepting per day large sum of over ₹ 2 Lakhs in Sep-2014. Later this was reduced to ₹ 1 Lakh daily limit for lump sum investments. Last year in 2016, Mirae Asset Emerging Bluechip fund too restricted large sum. They stopped accepting any lumpsum amount in 2016.
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Should you continue your SIP’s in DSP BR Micro cap Fund?
DSP BR microcap fund is a good mutual fund scheme which figured in our top 10 mutual funds schemes to invest in 2017. Fund houses stopping fresh investment in specific instances to safeguard existing investors is always good. You can continue to invest in such small cap funds through your SIP’s. However, if you are already investing in this fund and you are in need of money in next few months, it is better to hold fresh SIP investments into such funds. Since stock markets have reached peak, your fresh SIP investment may not yield good returns to withdraw in the next few months.
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Suresh
DSP BR Microcap fund Stops fresh investments – Should you continue your SIPs
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14 comments
Add a comment ↓Hi Sir,
As we are seeing that from last few months DSP BlackRock Mid Cap Fund is performing very bad ,
I have SIP in that 7K per month last two years ,
Shall i carry on ? or need to pull out my all money and start to fresh SIP ,
Pls suggest
Good
What is alternative of this funds..
You can invest in HDFC midcap opps or Franklin India smaller cos fund
Sir,
Please suggest me for minimum investment and maximum growth ,i want to invest monthly basis up to 10 years plane for saving perpose ..
Hello Sir,
I started investing in this fund as per your advise under best funds. My first SIP deducted only last month and I have taken the period of investment as 13 months. As you further advise here, I'll continue with my SIPs. But do you think if there would be any liquidity crunch while withdrawing money from this fund a year later?
Thanks.
Saurabh, I don’t think there would be any such issue. However markets are peak and you started investing thru SIP now, in near term, your portfolio may show that it is shrinked, but you should look for long term perspective
Dear Suresh
A very timely article. Some of your articles are timely and informative updates as such crucial information may have been missed by some of us browsing rapidly through print and electronic media.
Thanks.
Suraj Shetty
Delhi
very useful article & very good advice. I will continue my SIP in DSP
good to hear that this article benefitted you.