Limit on accepting investors’ investment in smallcap funds continue

Popular smallcap funds continue to ban investors’ investments, while this category of markets seems to be improving. The performance of the Nifty Smallcap 100 Index has been six per cent better than the benchmark Nifty so far this calendar year. Axis Mutual Fund has a limit for accepting investors’ investments in smallcap funds.

According to the notification of the fund house, new investments will be accepted up to Rs 2 crore per investor per day. This will also apply to switch-in and additional subscription in addition to SIP and systemic transfer plans.According to data from the Association of Mutual Funds in India, the scheme manages assets worth Rs 2,107 crore. Lump-sum investments in SBI Smallcap Fund and DSP Small Cap Fund are not permitted. Investors use it largely for well-planned investments in smallcaps.

During the broad market downturn in 2018, some limits were relaxed and two schemes allowed subscription through SIP. But SBI Small Cap Fund maintained a limit of Rs 25,000 crore for SIP.

The fund has assets worth Rs 3,519 crore while DSP Smallcap Fund manages assets worth Rs 5,239 crore. Similarly, the Rs 9,000-crore Nippon India Smallcap Fund has put a moratorium on lump-sum investments, while a new investment limit of up to Rs 5 lakh monthly through SIP and STP has been placed.

Industry analysts said, there are signs of improvement in SmallCap, but given the low liquidity in the sector, investing large sums could be challenging.
Kaustubh Belapurkar, director (fund research), Morningstar Investment Advisors, said, “In this sector, there is no lack of coverage of analysts or its coverage is low, so investing here is not easy.” In addition, low liquidity in such stocks makes it difficult to invest large sums here.

Also, there may be a risk of concentration if the money is invested with the same consideration and the cost is high due to limited liquidity, he added. In three years, midcap and smallcap funds have underperformed their counterparts, but in the long run, they have performed well.

Experts said that the smallcap is not suitable for first-time investors because it carries the risk of large fall and considerable volatility. A fund manager said, those with an investment outlook of 6-7 years can choose to invest in these funds.
In the last five and ten years, the performance of Smallcap has been 50 to 200 basis points better than Largecap.

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