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DSP BlackRock Micro Cap Fund, rated 4-star by Value Research, has some bad news for new investors. This fund is one of the best performers, a major reason why it has attracted lot of fanfare and investor attention.
With effect from February 20, 2017, all subscription/switch-in applications in the Rs 4751-crore scheme and registration of new Systematic Investment Plan (SIP), Systematic Transfer Plan (STP), Dividend Transfer Plan (DTP) in the scheme have been temporarily stopped.
However, the fund-house said the scheme will continue to allot units for subscription transactions pursuant to SIP, STP, Dividend Transfer Plan, Super SIP facilities registered prior to Feb. 20. and pursuant to declaration of dividend under the dividend reinvestment option offered under the Scheme.
Over the last three years, the fund has witnessed robust increase in its asset base. In August 2013, just before the start of the small/mid-cap rally in the Indian equity market, the fund’s size was about Rs 300 crore. This grew 15-fold in just a span of about 4 years.
This is not the first time that the fund has capped inflows. In September 2014 it implemented a restriction of Rs 2 lakh for daily lump sum subscription. It was reduced further to Rs 1 lakh in August 2016.
Vinit Sambre, Senior Vice President and Fund Manager, DSP BlackRock 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.”
Aditi Kothari Desai, EVP and Head - Sales, Marketing & E-Business, DSP BlackRock 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.”
Bigger and growing fund size, particularly for a small/mid-cap fund, can pose major challenges to the fund. This could be in the form of market-impact cost and opportunity cost. Given the run up in the small/mid-cap valuations space, it has become increasingly difficult for many fund managers to find investment-worthy stocks available within their chosen investment universe.
Illiquidity is another area of concern for small/mid-cap funds. Investors should realize that during a market downturn, it becomes difficult for the manager to sell illiquid stocks due to lack of adequate liquidity in the system. This type of situation can adversely impact the fund’s performance, and ultimately the investor.
In 2016, Mirae Asset Emerging Bluechip too had stopped accepting lump sum subscriptions. At that time, Mirae Asset MF had told Value Research, "Considering the significant flows which we are getting in the fund recently, we believe any large incremental inflow at this stage could be detrimental to the interest of the existing investors. Thus in our opinion, in order to consolidate inflows in a graded manner, we had decided to temporarily suspend fresh lumpsum subscription (including switches) in this fund w.e.f. 25th October, 2016 after the cut off time of 15:00 hours. We believe Mirae Asset Emerging Bluechip Fund is a scalable product and a gradual inflow will benefit our investors."
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