Why mutual fund AMCs are declining fresh lump-sum investments in small-cap funds — explained

livemint.com:

Mutual funds investment: Amid Indian stock market climbing to a new peak in recent sessions, most of the benchmark indices including small-cap index has surged to record high levels, delivering stellar return to the equity investors. However, for surprise to some fresh mutual fund investors, some asset management companies (AMCs) declined to receive fresh lump-sum investment in small-cap schemes when Indian stock market was scaling new highs on a regular basis. According to tax and investment experts, mutual fund AMCs declining to accept fresh lump-sum investment in small-cap mutual fund schemes is not a new phenomenon.

AMCs discourage fresh upfront investment in any index fund when it is at record high. This exercise is aimed at ensuring the safety of their existing investors and maintain high yield of their scheme. They said that taking fresh investment at record higher levels in any index fund would lead to lowering of their annual yield that will hit return of their existing investors.

So, they advised mutual fund investors to continue with their mutual funds SIP plans but avoid investing upfront in an index when it is at record higher levels. On why AMCs are declining fresh lump-sum investment in small-cap schemes, Pankaj Mathpal, MD & CEO at Optima Money Managers said, "AMCs are declining upfront fresh investment in small-cap schemes these days because small-cap index has been hitting fresh highs on a regular basis. Due to this, there is high risk involved in small-cap funds.