DSP Mutual Fund launches first-of-its-kind DSP Nifty Smallcap250 Quality 50 Index Fund

In the vast landscape of investment opportunities, the small-cap space stands out as a realm of untapped potential. Companies in this segment have the capacity to deliver outsized returns, yet they also bear the risk of more significant downturns. It’s a double-edged sword that demands careful consideration. Small-cap stocks, often less scrutinized and less liquid than their larger counterparts, require a discerning eye for those investors seeking to navigate this dynamic terrain.

Recognizing the need for a more strategic approach to small-cap investing, DSP Mutual Fund has taken a groundbreaking step by introducing the first-ever ‘Quality-Focused’ Smallcap Fund – the DSP Nifty Smallcap250 Quality 50 Index Fund (DSP NSQ50IF). This open-ended scheme is designed to track the Nifty Smallcap250 Quality 50 Index, applying stringent exclusion and selection criteria to identify and invest in 50 fundamentally sound companies out of the 250 in the Nifty Smallcap250 universe.

Quality Index for Quality Returns

The Quality Index sets itself apart by incorporating key quality filters, including Return on Equity (ROE), Debt to Equity ratio, and Earnings Per Share. This careful selection process results in a portfolio of companies with higher ROE and lower leverage compared to the broader Nifty Smallcap250 Index.

Since its inception, the Quality Index has consistently outperformed its parent index. Over 12 out of 19 calendar years, the Quality Index has surpassed the broader index. Remarkably, on a 10-year basis, it has outperformed both the broader index and active small-cap funds.

SIP: A Reliable Strategy

For investors eyeing the long term, DSP recommends entering the DSP NSQ50IF via the SIP (Systematic Investment Plan) route. Historical data reveals that 10-Year SIP returns in the Quality Index have remained resilient, providing comparable returns regardless of market peaks or lows. During challenging periods for lumpsum investments in the broader index, SIP returns in the Quality Index have consistently outshone, demonstrating the resilience of a systematic investment approach.

Diverse Market Conditions

The Quality Index has demonstrated its resilience in both market rallies and downturns compared to the broader index. A longer tenure with the Quality Index has shown a higher probability of better returns and a decreased likelihood of negative returns compared to the broader index.

Unique Fund Offer: DSP NSQ50IF

The fund focuses specifically on the quality smallcap segment. The index applies quality filters to narrow down the investment universe to 50 high quality smallcap stocks from the Nifty Smallcap 250 index. The New Fund Offer for DSP NSQ50IF is set to open for subscription on December 5th, 2023, and will close on December 15th, 2023.

Quality Filters – What Sets This Fund Apart

The fund distinguishes itself by focusing specifically on the quality small-cap segment, utilizing quality filters that include:

1. Return on Equity (ROE): Identifying companies efficiently using shareholder capital to generate profits.
2. Low Debt to Equity Ratio: Prioritizing companies with strong balance sheets and lower bankruptcy risks.
3. Earnings Growth Consistency: Selecting companies with steady earnings growth for long-term financial health.

The index further excludes stocks with high pledged promoter holdings, low liquidity, short listing history, high volatility, and exorbitant valuations.

Fund Details:

– Fund Managers: Anil Ghelani and Diipesh Shah

– Category of Scheme- Index Fund

– Type of the Scheme– An open-ended scheme replicating/ tracking Nifty Smallcap250 Quality 50 Index

– Investment Objective- The investment objective of the Scheme is to generate returns that are commensurate with the performance of the Nifty Smallcap250 Quality 50 Index, subject to tracking error.

– Minimum Application Amount (Fresh Purchases)- Applicable to both Regular & Direct Plan: For first investment and for additional purchase – Rs. 100/- & any amount thereafter

– Minimum instalment Amount for SIP– Rs. 100 & any amount thereafter

– Exit Load: Nil

– Benchmark: Nifty Smallcap250 Quality 50 Total Return Index

Key Benefits

– Exposure to potentially high-growth quality small-cap stocks.

– Aims to capture small-cap upside with lower volatility.

– Introduces a quality dimension to small-cap investments.

– Leveraging the expertise of a leading passive investments team.

Key Risks:

– Small-caps are prone to higher volatility.

– May underperform compared to active small-cap funds.

In Conclusion:

For investors seeking a focused, long-term index investment strategy in the high-risk, high-return small-cap category, DSP Nifty Smallcap250 Quality 50 Index Fund offers a unique opportunity. By concentrating on higher quality small-caps, the fund aims to harness the growth potential of this segment while mitigating volatility and risks, providing a strategic addition to the portfolios of savvy investors.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.