DSP BlackRock to suspend fresh transactions in Micro Cap Fund

Asset management company DSP BlackRock Investment Managers today said it has decided to temporarily suspend all fresh transactions in its open ended diversified equity growth scheme Micro Cap Fund effective from February 20.
The reason cited by the company for suspension of fresh inflows is that there is a possibility that large inflows into the scheme may prove detrimental to the interest of existing unit holders.
These transactions include all subscription/switch-in applications and registration of new systematic investment plan (SIP), systematic transfer plan (STP), dividend transfer plan (DTP) in the scheme. The scheme will continue to allot units for subscription transactions pertaining to SIP, STP, DTP, Super SIP facilities registered before February 20, a company statement said.

Any subscriptions/switch-in/SIP/STP/DTP applications received post the cut-off timing of February 17 would not be accepted. The aforesaid suspension will continue till further notice, it added.
DSP BlackRock Micro Cap Fund's AUM as of January 31 was around Rs 4,780 crore, making it among the largest funds in this category.
"While we continue to find interesting investment opportunities for the fund to invest in, its current size poses the bigger challenge of liquidity," Vinit Sambre, senior vice president and fund manager, DSP BlackRock, said.

"It is challenging to incrementally build positions or to increase stock weightage of companies to a meaningful size in the portfolio," he added.

"Having less than desired weightage in stocks that the fund invests in can limit the fund's ability to generate returns in the future," Aditi Kothari Desai, EVP and head-sales, marketing and e-business, DSP BlackRock, said.
Over the last three years, the fund has witnessed
phenomenal increase in its asset base.
In August 2013, just before the start of the small/mid-cap rally in the equity market, the fund's size was Rs 307 crore, which over a period of next three years swelled to Rs 4,323 crore (as of December 2016), a jump of astounding 1,308 per cent in absolute terms, a Morningstar report said.

However, the fund house restricted inflows into the fund twice, it added.
In September 2014, it had put a restriction of Rs 2 lakh for daily lumpsum subscription and reduced it further to Rs 1 lakh in August 2016.
"Given the run up in the small/mid-cap space, it has become increasingly difficult for the manager to find investment worthy stocks available within his investment universe and which also passes the muster on his stringent stock selection parameters," said Himanshu Srivastava, senior analyst manager research, Morningstar Investment Adviser.
The fund's investment universe comprises stocks beyond the top 300 companies by market capitalisation. Most of these companies have seen huge surge in their valuations thus restricting the investment universe further, he said.

As the fund size grows, it becomes difficult for the manager to buy a sizable position in a company to have a meaningful impact on the fund. All these factors combined has made it difficult for the manager to prudently deploy fresh flows that too on a timely basis, he added.