Experts
believe that this strategy will help the fund sustain its performance.
From October 1, DSP BlackRock Mutual Fund will stop accepting applications worth more than Rs.2 lakh in its flagship scheme - DSP BlackRock Micro Cap Fund due to size constraints.
The
fund’s size has ballooned by 50% in past two months i.e. from Rs. 850 crore as
on June 2014 to Rs.1,274 crore as on August.
Ajit Menon, EVP, Head of Sales and Co-head of Marketing, DSP BlackRock MF said, “DSP BlackRock Micro Cap Fund is one of the best performing funds in its category. In the past few months, we have witnessed healthy inflows in this fund. The fund’s size has now grown to over Rs.1,200 crore. We don’t want it to grow beyond Rs.1,500 crore as it would be difficult to handle a large fund in the micro-cap space. A large size could be detrimental to its performance.”
In its addendum dated September 25, the fund house said, “With effect from October 1, 2014, the following transactions shall be temporarily suspended into DSPBRMCF: subscription, registration of new SIP and registration of new STP in the fund amounting more than Rs.2 lakh. The suspension of aforesaid transactions will continue till further notice.”
Value Research data shows that DSP BlackRock Micro Cap Fund has delivered CAGR of 17% since inception. The fund has consistently outperformed its benchmark. It has given CARG of 29% and 24% in 3 and 5 year period respectively.
VR data shows that the fund has remained true to its label by investing majority of its portion (73%) in small companies. No large fund in the mid and small cap category has such a huge exposure to small cap companies. Hence, it is difficult to ascertain that closing the fund for huge inflows will help this fund perform better.
Suresh Sadagopan of Ladder7 Financial Advisories praises the move, “Such call needs guts. It reflects commitment of the fund house towards customer centricity.”
“Mid and small cap stocks are volatile. Sometimes, the fund manager ends up deploying cash in money market because stocks tend to be overvalued. Also, mid and small cap stocks have a liquidity issue. Hence, closing the scheme from high value subscription is a good move to minimize risk,” said a senior employee of the national distribution firm.
However, some advisors have a different view. “It’s not a thumb rule that closing subscription will result in superior performance. Many funds, especially mid and small cap schemes, can only absorb money up to a certain limit. The downside risk of such schemes increases with the increase in size,” said a Mumbai based distributor.