DSP Blackrock has stopped taking fresh investments in their Micro Cap mutual Fund from Feb 17, 2017. This is not happening for the first time. In September 2014, the fund stopped taking more than 2 lac of investments. In August 2016, they reduced the limit to 1 lac and in 2017, they have completely stopped taking fresh investments.

What does it mean for existing investors?

The existing investments and on-going SIPs will continue to be invested in the fund. They can withdraw whenever they want. There is no restriction on exit other than the 1% exit load for first 364 days. But, the investors cannot transfer from other DSP Blackrock mutual funds to Micro Cap and cannot increase their SIP amount after Feb 17, 2017.

DSP Blackrock Micro Cap Fund Review

Currently, the AUM of DSP Blackrock Micro Cap is 4,750 Cr. It invests in microcap companies. Below is the returns graph of the fund for past 10 years. Clearly, the fund has consistently outperformed the benchmark – S&P BSE Small Cap. It has generated around 25.8% alpha in past 3 years, over the benchmark.

DSP Micro Cap

DSP Blackrock Micro Cap Performance

At an annual basis, the fund has generated following very good returns

DSP BR Micro Cap Annualized Returns

DSP Blackrock Micro Cap Annualized Returns

Here is a quick look at the AUM at a quarterly basis and the restrictions on the fresh investments introduced by the fund. Clearly, as the AUM has shot up, the restrictions have come through.

DSP BR Microcap AUM

DSP Blackrock Micro Cap AUM and Investment Restrictions

DSP Blackrock Micro Cap is a pretty diversified fund. Top 10 companies cover mere 27% of the portfolio. The top 3 sector – Chemical, Textile and Construction covers around 41%. The average market cap of the holding companies is 3,400 Cr while the category average is 5,400 Cr. The fund has a very low turnover ratio of 18%. The turnover ratio is the percentage of a fund’s holdings that have been replaced in a given year.

What does the fund closing mean
  • Lumpsum – existing or new investor cannot make any lump sum investment
  • SIP – existing or new investor cannot start a new SIP
  • STP – existing investor cannot do STP to this fund
  • Withdrawal – existing investor can withdraw same as before
The best alternative to this fund
Franklin India small companies

Franklin India small companies Fund

Other high performing funds that stopped taking new investments
  • Mirae Asset Emerging Bluechip Fund

Mirae Asset Emerging Bluechip fund has an AUM of 3,000 Cr. It invests in mid-cap companies. Below is the chart of its performance since the launch in 2010. Clearly, this fund has outperformed its benchmark – Nifty Free Float Midcap 100. Over last 3 years, the fund has generated an alpha of 20.7% over the benchmark.

mirae asset india emerging bluechip performance

Mirae asset India Emerging Bluechip performance

Mirae Asset India Emerging Bluechip Returns

Mirae Asset India Emerging Bluechip Returns

What does the fund closing mean
  • Lumpsum – existing or new investor cannot make any lump sum investment
  • SIP –  new investor can start a new SIP (monthly/weekly) of 25,000 per transaction
  • STP – existing investor can do STP to this fund of 25,000 per transaction
  • Withdrawal – existing investor can withdraw same as before
Other popular funds that have tried suspending fresh investments in the past
Why do small/mid cap mutual funds stop taking fresh investment?
  • Investment strategy – A small and micro-cap mutual funds look for companies that are beyond top 300. As these companies grow their valuations, they start falling out of the investment philosophy of small/micro cap.
  • Problems with Large AUM – Fund managers don’t get enough opportunities for large assets. Most of the times they are forced to make sub-optimal investments decisions because of the large AUM.
Conclusion

DSP Blackrock Microcap is suspending taking fresh investments. This is not unusual for small and mid-cap mutual funds. As the AUM increases, it becomes difficult to continue giving good performance for such funds.