Problem of plenty for funds as smallcap kitty swells
Record inflows into smallcap funds in the past few months may create a problem of plenty for fund houses as deploying the amount in the right stocks at the right price is likely to become increasingly difficult.
Recently, Nippon India Small Cap Fund temporarily stopped accepting fresh lump sum investments and enforced a limit of Rs 5 lakh per day for new SIPs. Tata MF also stopped fresh inflows into Tata Small Cap Fund. SBI MF has already suspended lump sum investments in SBI Small Cap Fund since September 2020 and is currently accepting SIP investments up to Rs 25,000.
“The limit on subscription of units of the scheme is being proposed to facilitate gradual deployment of corpus in order to align with the nature of smallcap investing. The step is warranted considering the recent sharp rally in the smallcap space and increased investor participation through high-ticket investments,” Nippon Life India Asset Management said in a notice to investors earlier this month.
Smallcap funds saw record inflows of Rs 5,472 crore in June, taking the year-to-date flows in these funds to Rs 17,868 crore. Between December and June, midcaps and smallcaps outperformed the Nifty 50 by 9% and 6%, respectively.
“We have been seeing strong inflows in our smallcap fund. Deployment of smallcap funds, by their very nature, takes time. We have to wait for the right stock, right quantity and right price to deploy the money we get. This was getting increasingly difficult of late for the fund. And we thought it would be prudent not to accept lump sum investment because if there is lag in deployment, it can raise cash levels in the portfolio and impact performance,” said Anand Varadarajan, business head – institutional clients, banking, alternate
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