Investing in microcaps or small caps has always been challenging for investors. The huge return potential always attract them, but the probability of losing capital in the bear market is what make them afraid. Playing with stocks directly is also difficult since they don’t have means to judge the quality of financials. So what’s the way out?
Going via mutual fund route can be a good option for those –as it can help you enjoy the best of both worlds. This minimizes the risk while giving you a good return over a period of long time. Here is a good performing high-quality microcap fund: DSP BlackRock Micro Cap Fund – Regular – Growth
Let’s analyze it from different point of view and what can be the best way than focusing on return. The fund was launched in 2007 and in the last 5-years it has given a good return. Had you invested 100000 INR in 2012; it would have grown to 4 lakh rupees at the rate of 27% CAGR. When invested through SIP mode, it would have compounded your capital at the rate of 21% in the last 5 years.
This is the portfolio construction of the fund. The focus is on Industrial products, textile and chemicals, which is one-third of total portfolio. If you see some of the main stock—they have given stunning returns and that’s why the performance of the fund has been very good.
- KPR Mills: 1200%
- Finolex Cables: 1500%
- APL Apollo Tube : 1300%
- SRF Limited:1300%
Though, it’s not clear at what price these stocks were purchased, but the stock picking has certainly paid off for the fund.
The fund has handled bear phases in 2008 and 2011 quite well and it lost much less than its peers, but later it underperformed its peers in the bull market.
Recently the fund house has stopped accepting lumpsum amount in this fund because of the high valuations of stocks in the midcap space. But you can invest in this fund through the SIP mode with a horizon of 5-7 years.