ICICI Prudential halts fresh subscriptions via lumpsum mode wef March 14

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ICICI Prudential Mutual Fund, the second largest fund house with assets worth Rs 6.63 lakh crore, announced on March 12 that it will be temporarily suspending fresh subscriptions through lumpsum mode and switches into ICICI Prudential Small Cap Fund (IPSCF) and ICICI Prudential Midcap Fund (IPMCF)with effect from March 14, 2024.

Fresh Systematic Investment Plans (SIP) and Systematic Transfer Plans (STP) will be allowed up to Rs 2 lakh per PAN (Permanent Account Number) level, per month. However, ongoing SIPs and STPs registered before March 14 shall continue in the schemes, ICICI Prudential MF said.

The company said it is temporarily suspending fresh subscriptions in the schemes because midcap and smallcap stocks have relatively outperformed the large-caps resulting in high valuations. As the share of mid and small-cap stocks in total market cap is growing rapidly, valuations in this space have turned relatively higher.

The corpus sizes of IPSCF and IPMCF are Rs 7,415 crore and Rs 5,484 crore. Curiously, both the schemes aren't as big as some of the category's biggest schemes. But over the past 2-3 months, the MF industry has been cognisant of the growing illiquidity in small- and mid- cap segments in the stock market, on account of rising markets. The capital market regulator, Securities and Exchange Board of India (SEBI) had asked mutual funds late February to conduct stress tests on their small-cap and mid-cap funds.

Accordingly, the Association of Mutual Funds of India (AMFI; the Indian MF industry's trade body) has instructed fund houses to submit the stress test results once every 15 days, the first of which should be published by March 15. A portfolio’s stress test basically reveals how liquid it really is. The aim is to ascertain how soon investors can take their money back, if the equity markets were to collapse and there is rush on redemptions.