DSP Small Cap Fund

A small cap fund is a mutual fund that invests in stocks of companies that are ranked 251 and onwards by market capitalisation in India. A small-cap fund can potentially drive relatively higher returns for your portfolio if invested long-term, provided you have the appetite to tide over the possible short-term volatility. It can help to diversify your portfolio by complementing other equity and debt mutual fund investments.

A key characteristic of a small-cap mutual fund is its volatility or sensitivity to market conditions. Over short or medium terms, small-cap funds may carry this risk of fluctuation in returns. Having said that, in the long run, they might have the potential of helping you achieve your long-term life goals like retirement or your child's higher education.

If you have a high-risk appetite, it is only then recommended to invest a portion of your portfolio in small-cap funds Of course, you will need to be patient with the market's ups and downs and hold on to your investment for the long term.

A small-cap fund can help you diversify the risk and returns of a portfolio. While they're more likely to be volatile in the short term than mid-caps or large caps, they may likely see potentially higher returns in certain market conditions when held for the long term.

A small cap fund lets you capture a company's growth journey from it being relatively lesser known in the market until it enters the top 250 stocks in the index basis market capitalisation.

Small cap funds can potentially enhance your portfolio returns compared to large cap funds, which are proven to provide moderate returns (subjected to market conditions). This is because large-cap funds are invested in companies that are meant to be more stable in nature as they are already established. With small-cap companies, on the other hand, the returns have more wriggle room given the higher growth potential.

Anyone can invest in a small-cap mutual fund provided they are looking for long-term capital growth and appreciation in their investment's value and has the risk appetite for it.

Over the short or medium term, small-cap funds may experience market volatility. The funds invested into small-cap funds should be treated as money required for a goal over 10 years.

Finally, investors who have low-risk appetites may not enjoy the experience of market volatility that accompanies a small-cap fund on its path to potential growth. Alternatively, investors like this can take a holistic look at their portfolio value and/or invest only a small part of it in small-cap mutual funds . We advise due diligence before making a decision to invest in small-cap funds.

While investors look at absolute returns, historical returns, rolling returns, and so on, an ideal approach is to pick up a small-cap mutual fund considering the fund manager's experience and his/her philosophy and remain invested in the fund for a long time.

It is recommended to invest in DSP Small Cap Fund with a SIP or systematic investment plan and for a longer period of time. Small-cap funds can be sensitive to market conditions over short-term periods. However, they have the potential to give higher returns along with higher risk as well over the long term. The benefit of a SIP is that it helps in averaging your cost of purchase across the market's ups and downs over time, i.e. rupee cost averaging.

Having said that, if you have the expertise to be able to time the market, a lump sum investment can be considered as well. While you can invest in DSP Small Cap Fund with a lump sum, it is important to remember the long-term mindset required to harvest a small-cap fund's returns.

So, first things first, retirement is typically a phase of life when you'd like to minimise the surprises. Historic small cap fund returns show that they can benefit you in the long term. However, this comes tied in with the market sensitivity risk inherent to small-cap mutual fund. Also, when you are retired, building long-term wealth may or may not be your goal; instead, it should be focused on the conservation of accumulated wealth so far for a steady income thereon.

If you have the appetite and a goal for which you'd like to continue investing in DSP Small Cap Fund, you may choose to do so with a smaller percentage of your portfolio and through the SIP mode of investment. For example, an investor may choose to reduce their small-cap fund SIP from 10% of their investable income to 5%. However, someone with a higher risk appetite may continue to invest in small cap funds as they have in the past.

The thumb rule, and not just for small-cap fund/DSP Small Cap Fund , is that your returns from your mutual fund are not taxed if you continue to hold on to them.

Short-Term Capital Gains (STCG) are gains made from selling your small-cap fund/DSP Small Cap Fund units before 12 months from the date of purchase.

Whereas, Long Term Capital Gains (LTCG) are gains made from selling your small-cap fund/DSP Small Cap Fund units after 12 months from the date of purchase.

Here's how they are taxed:

	Applicable tax as per the Income Tax Act, 1961
Short-term gain (< 12 months)	Long-term gain (>12 months)
15%	No tax till Rs 1,00,000.10% above 1,00,000

Historic small-cap fund investment returns are typically higher when evaluated over long-term periods. If you invest for the long term, typically around 7-10 years, the possibility of your small-cap fund/DSP Small Cap Fund giving you relatively higher returns compared to a large or mid-cap fund can be potentially higher. However, the long-term mindset is critical as stocks in this asset category are volatile and sensitive to market conditions over the short term.

A premature or medium-term withdrawal of funds can have an investor miss the period of potential growth that is possible in a small-cap fund . While past returns are not indicative of a small-cap fund's/DSP Small Cap Fund's future performance and returns, one can see that returns over longer terms may potentially hover above the anchor of 15% (however, it's not guaranteed and is subjected to fluctuation due to market conditions at any point of time). A SIP and a long-term mindset can be catalysts for an investment to give you such a return.

Any small-cap fund is likely to fluctuate across market conditions. DSP Small Cap Fund, too, can be volatile when considered over a short period, like 5 years or less. However, if held for the long term, the fund may have the potential to outperform subjected to market conditions.

For a better understanding of a fund's performance across market conditions, you can look at the standard deviation of the fund, which is a measure of the volatility of a mutual fund scheme. Having said the above, as per the risk-o-meter, small-cap funds do fall under the " very high risk " category. Hence, we recommend that you take into account your risk appetite before investing.

For Scheme type, product labelling, Riskometer and other details and disclaimers of DSP Small Cap Fund , kindly scroll above.