Why are AMCs stopping lump sum investments in small cap funds? Arnav Pandya explains

economictimes.indiatimes.com:

«Another thing which also might happen and which normally happens is that when there is a sharp run up in the market and then especially in the mid and the small cap segment one finds that the valuation for these kinds of companies has gone too high and in that case the fund manager would not want to be forced to invest at these kinds of high valuations, so a way in which they would want to restrict this kind of choice is by ensuring that new inflows are restricted through the lump sum,» says Arnav Pandya, Founder, Moneyeduschool.What is actually making these AMCs stop lump sum investments in their small cap funds? Is it the overheating of this particular sector and the valuation which have reached on a higher level? There are different factors which different AMCs might look at while they are deciding on whether they want to stop the lump sum investment into their small cap schemes. But normally what one sees is that one is that when the AUM of the small cap fund, for example, goes too high, then it might become difficult for the fund manager to deploy the funds and that can be a reason why they might want to restrict larger amounts in the form of lump sums, while they might continue with the systematic investment and systematic transfer plan.