

Why must investors look beyond the bottom-fishing in smallcaps?
₹5,191.06 crore redemption, small-cap funds saw inflows of ₹3,881.06 crore in February, prompting fund houses to launch new schemes and reopen existing ones.The opportunity is real, but so are the risks. Experts warn that low liquidity, stretched valuations, and governance weaknesses can turn potential gains into sharp losses.“The runway is huge and positive, but the interim perils are also real,” remarked Harsh Gupta Madhusudan, fund manager-PIPE, Ionic Asset.Following this renewed interest, ICICI Prudential Mutual Fund reopened subscriptions to its Small Cap Fund in January, Groww Mutual Fund launched a new small-cap scheme around the same time.
The Wealth Company Mutual Fund launched its Small Cap Fund on 4 March, and Abakkus Mutual Fund, backed by Sunil Singhania, ran its new fund offer from 26 February to 12 March.Despite the recent rise, inflows remain below the peak of ₹6,484.43 crore hit in July 2025, the highest since January 2024.Early signs of a rebound are encouraging, but market participants caution that gains can be quickly reversed under stress.Madhusudan highlighted the difficulty of quickly selling assets during a crisis and the psychological stress caused by “exaggerated mark to market potential losses” during market downturns.“Given low liquidity, small balance sheets and business concentration, volatility can be sharp, making disciplined positioning and exit planning critical,” added Hari Shyamsunder, vice president and senior institutional portfolio manager–India Equities, Templeton Global Investments.As more money crowds into a limited set of stocks, both gains and losses are amplified. Sharp drawdowns can trap investors, underscoring that chasing momentum in small-caps without caution can turn
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