The New Fund Offer of DSP NSQ50IF is open for subscription, and it will close on December 15.
Out of the 250 stocks in the Nifty Smallcap250 universe, the index applies exclusion criteria and stock selection criteria to filter out companies which do not make the cut and choose 50 stocks that fit the criteria. The quality filters include Return on Equity, Debt to Equity and Earnings Per Share. Hence, the Nifty Smallcap250 Quality 50 Index (Quality Index) has companies that have higher ROE and lower leverage compared to the Nifty Smallcap250 (broader Index).
The Quality Index has outperformed its parent broader Index since its inception, said a press release. In 12 out of 19 calendar years – the Quality Index performed better than the broader Index. On a 10-year basis, the Quality Index has always outperformed the broader index as well as active small cap funds.
Investors are recommended to buy DSP NSQ50IF via the SIP route. 10-Year SIP returns have shown that long-term SIP in the Quality Index has given similar returns, irrespective of the market being at peak or lows, and considerably better returns than the broader Index.
During periods like 10th December 2007 to 10th November 2010, 10th November 2010 to 19th May 2014 and 15th January 2018 to 16th March 2021, when a lumpsum in the broader index gave 0% returns, SIP returns in the broader Index were anything between 18 to 41% and that in the Quality Index would have been between 20 to 52% in the same time periods. The Quality Index has also outperformed in rallies and during falls compared to the broader Index. Data also shows that the probability of better returns increases, and negative returns decrease with longer tenure for the Quality Index compared to Broader Index. “Smallcaps have the potential for outsized returns when held for the long term. However, the space is inherently vast, relatively less studied and poses a challenge to investors to find quality companies among small caps. Our passive offering aims to reduce the risk of capital loss by choosing ‘Quality’ companies with better fundamentals with an aim to keep wealth destroyers away to a great extent,” says Anil Ghelani, CFA, Head – Passive Investments & Products, DSP Mutual Fund.
