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Nippon India Mutual Fund, or Nippon Life India Asset Management, on Thursday announced that it will not accept lump-sum investments in one of its schemes, Nippon India Small Cap Fund (NISF), with immediat effect (July 7).
“Fresh/additional subscriptions/switch-ins will not be allowed/accepted at any point of time till further notice, from the effective date,” it said. Fresh registrations through Systematic Investment Plan without initial investment or Systematic Transfer Plan (“STP”) or such other special product shall continue with a limit of ₹5 lakh per day per PAN, the notice from the fund house further said.
The fund house said the fresh registrations via the systematic investment plan (SIP) or through the systematic transfer plan (STP) route, will continue. Even the existing SIP and STP will remain unaffected.
Similarly, Tata Asset Management Company last week decided to temporarily suspend all fresh inflows through lump-sum/switch-in applications in Tata Small Cap Fund from July 1.
The temporary suspension is not applicable to existing SIP/STP and request for new SIP/STP registrations, redemptions, SWP and Switch-Out, fund houses said.
Higher inflows
“The step is warranted considering the recent sharp rally in the small cap space and increased investor participation through high-ticket investments which would be in the best interest of existing unit holders and appropriate for incremental investments the last few months, the small-cap space has seen higher than usual inflows owing to its good performance,” Nippon Mutual Fund said.
Not only for small-cap funds, even HDFC Mutual Fund has discontinued lump-sum investments in its recently-launched HDFC Defence Fund due to lack of investment opportunity. The scheme was launched on May 19 and the new fund offer closed on May 30.
This clearly points out to problems fund managers face with such an inflow. First, asset size is growing steadily for small-cap funds. From a mere ₹38,820 crore as of May 2020, the AUM of small-cap funds jumped multifold to ₹1.54-lakh crore at the end of May 2023. Number of folios (individual investors) also climbed to 1.16 crore (51.68 lakh).
This means large funds will be forced to chase same assets that had already charged up. Besides limited headroom from current levels, fund managers might face liquidity issues as well.
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