Nippon India Mutual Fund limits inflows into smallcap fund

Mutual Funds

Nippon India Life Asset Management has announced that it will not accept lump sum investments into Nippon India Small Cap Fund (NISC) from July 7. The restriction will also apply to switch in transactions.

The fund house has further made it clear that fresh registrations through systematic investment plan (SIP) without initial investment or systematic transfer plan (STP) or such other special product shall continue with a limit of Rs 5 lakh per day per PAN. Existing SIP and STP will not be affected due to this announcement.

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“The limit on subscription of units of the scheme is being proposed to facilitate gradual deployment of corpus in order to align with the nature of small cap investing. 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,” said the addendum released by the fund house.

NISC is the largest small cap fund in the mutual fund industry with assets under management of Rs 31,945 crore. The fund has given 39.77 percent returns in last one year compared with 30.8 percent average returns given by the small cap category, as per Value Research. NISC is managed by Samir Rachh and Tejas Sheth.

Last week, Tata Small Cap Fund had stopped accepting lump sum investments and allowed inflows only through SIP and STP. HDFC Defence Fund also capped inflows through SIPs and STPs to Rs 10,000 per PAN per month after the scheme opened for continuous subscription in June.

Many mutual fund investors have been keen to invest in small cap funds. As on May 31, 2023, 24 small cap equity funds managed assets worth Rs 1.53 lakh crore, as per data released by the Association of Mutual Funds in India (AMFI). Small cap equity funds got net inflows of Rs 3,282 crore in May 2023 – the highest among all diversified equity fund categories in Indian mutual fund industry.

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More fund houses closing the doors for lump sum investments in small cap focused schemes, can be interpreted as the initial signs of investors going overboard on small cap stocks. Small cap stocks tend to be more volatile than their large cap counterparts. Investors should be investing in these only with five years and more time frame and through SIP and STP.