This smallcap fund delivered 57 per cent returns in last one year. Is it a powerful wealth creator?

Managed by Resham Jain and Vinit Sambre the DSP Smallcap Fund has given a 57 per cent return. So, is it worthwhile to think about it? Let us investigate.

Smallcap stocks were under pressure even before the pandemic. The collapse began in January 2018, and the pandemic intensified the fall in 2020. As a result, in just over two years, from January 2018 to March 2020, smallcap investors lost nearly 63 per cent of their wealth in absolute terms.  

However, as the pandemic-induced restrictions were lifted, the broader markets started to recover. In fact, smallcap funds have returned somewhat more than 64 per cent on average over the last year.  

Having said that, the DSP Smallcap Fund, managed by Resham Jain and Vinit Sambre, has given powerful returns of more than 57 per cent in the last year. Though this appears to be lower than the category average, it outperforms both its benchmark and the category average over the long term. In this post, we will analyze this fund to determine whether it is worth investing in. 

The graphs above depict the five-year rolling returns of the DSP Smallcap Fund and the Nifty Smallcap 250 Total Returns Index (TRI). The fund has outperformed the Nifty Smallcap 250 TRI in nearly all five-year rolling instances. Even in weakening markets, the fund has fallen less than the smallcap index. The fund's average five-year rolling returns are 19.95 per cent, while the category average and Nifty Smallcap 250 TRI are 15.92 per cent and 14.11 per cent, respectively. Returns are only one side of the equation. Let us now turn our attention to the opposite side, which is risk. 

As shown in the graph above, DSP Smallcap Fund surpasses Nifty Smallcap 250 TRI even in terms of risk (as assessed by Maximum Drawdown). On most occasions, the fund has lost significantly less than the smallcap index. The fund's highest drawdown was 49.8 per cent, while the smallcap indices was 59.8 per cent. For the period, the category's average maximum drawdown was 49.3 per cent.  

Final thoughts  

It is vital to highlight that there is no such thing as the best fund because winners rotate. As a result, while choosing a fund, it is critical to remember that the fund should consistently outperform its benchmark, not just in terms of returns, but also in terms of risk. After all, the core objective of actively managed funds is to outperform their benchmark index by applying an adequate risk management plan. That is exactly what the DSP Smallcap Fund does. According to our research, DSP Smallcap Fund has consistently outperformed Nifty Smallcap 250 TRI. And this consistency extended not only to returns but also to risk. However, you should always have realistic return expectations.