I have been investing in DSP BlackRock Micro Cap for the past three years. The fund has delivered only modestly during this period. I have a portfolio of seven funds and I am investing for a 10-12 years tenure. Should I continue with this fund?
-Gurmeet
DSP BlackRock Micro Cap invests in very small companies. It does that by not investing in the top 300 largest companies (based on market capitalisation). Small companies' stock can be risky and very volatile. But can also be more rewarding as they can grow much faster on their small base.
However, such stocks gain investors' attention only in a bull phase of the market. All risks and potential rewards will reflect in returns from funds that invest in such companies.
To gain from this fund one only has to wait through a full market cycle and plan one's exit in a bull phase. We like this fund for two other reasons. First, very small companies stocks are not closely tracked by business press and investment analysts. Individual investors investing in them end up speculating in tiny stocks on baseless tips. Secondly, these funds have a certain risk framework that ensures diversification at all times.
Hence, you need to be patient with it, especially since you're investing for the long run and it is not the only fund you own. Ideally, this fund shouldn't be more than 10 per cent of an investor's portfolio.
This article was originally published on May 14, 2013.
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