DSP MF sent out an email yesterday to the investors in the DSP Quant Fund about change in some of the ways in which the fund management will change.
These include:
- Change in rebalancing frequency from half-yearly to quarterly.
- Covered call options as a way to add extra income in case of sideways markets. (This one has become quite a popular change since Parag Parikh introduced it in its Flexi cap fund a couple of years ago. It caused quite a uproar then)
- Removal of stock weight cap to 10x of the benchmark to accommodate very low weight stocks in the benchmark. Overall cap for stock weightage retained at 10%.
You can read more details about the changes in the letter to Unitholders.
More of our notes about the fund are here and here.
How does that affect you?
DSP Quant Fund is a model driven fund and uses several quantitative and qualitative factors to shortlist and build a portfolio from the universe of BSE 200 stocks.
The thing with most models is that they need changes over time to keep them relevant.
This is the first time in the 3 years of the fund’s existence that the model is undergoing a change. On the face of it, it appears to be a thoughtful one and likely to enhance the effectiveness of the model.
If you are not happy with the changes, the fund house will give you an option to exit the fund without any exit load from June 16 to July 15, 2022.
I don’t see a concern though.
If you are invested and you know why you picked the fund for your portfolio, then you can continue to be invested.
High churn over ratio can also lead to higher expense ratio. This can lead to lower return. But if the fund is able to generate alpha, then the higher churn and expense ratio is justified.