Reliance Mutual Fund which had an AUM (Assets under Management) of Rs 6,613 crore at the end of February 2018, will stop fresh lump-sum money coming into Reliance Small Cap Fund. This decision will come into effect from 26th March 2018 (Monday) as per a newspaper notice issued by the fund house.
The decision follows in the wake of similar moves by other major small-cap funds. However, Systematic Investment Plans (SIPs) up to Rs 1 lakh are still allowed in the fund.
Why funds stop inflows
- Small cap and micro-cap funds find it difficult to manage large amounts of money due to lack of liquidity in the stocks of companies they invest in (small caps).
- These stocks tend to have thin volumes which make entry and exit by large funds both difficult and costly.
- Funds run out of investing ideas when too much money is chasing a relatively small pool of good investment prospects.
Other small-cap funds announcing halts on fresh inflows:
|Fund||Stoppage Date||Latest Fund Size (Rs Crore)|
|Mirae Asset Emerging Bluechip Fund||December 2017||5,131|
|L&T Emerging Business Fund||December 2017||4,286|
|DSP Blackrock Microcap Fund||February 2017||6,613|
What you should do
These types of moves across the industry is a sign of overall frothiness, especially in small cap. However, one does not need to stop SIP in a fund because they have stopped taking the lump sum. In such markets, any fresh commitment would be safer in multi-cap funds.