Reliance Small Cap Fund suspends fresh inflows; SIPs upto Rs 1 lakh allowedReliance 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.

Author
Neil Borate

Neil Borate is Deputy Editor, RupeeIQ. He can be contacted at neil@rupeeiq.com.