I am investing in 5 equity funds with a 10 year horizon. One of the schemes is DSP BlackRock Micro Cap, which has been moderate with its performance. Should I continue with this fund?
-Jasmeet Narang
DSP BlackRock Micro Cap invests in very small companies which are outside the top 300 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. 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 analysts, but this fund does that and has demonstrated its ability to generate favourable returns. Secondly, these funds have a certain risk framework that ensures diversification at all times. Both these traits are useful and what investors look for. Ideally, this fund shouldn't be more than 10 per cent of an investor's portfolio. This scheme has done well in the past three years, but has not out performed the market by wide margins. So, it typically has the scope to do when the markets are on the rise. 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.
This article was originally published on April 17, 2014.
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