Association of Mutual Funds in India (AMFI) has written to mutual fund houses to take measures to protect the interest of investors of small and mid-cap schemes, which have seen heavy inflows in the recent past. Small and mid-cap funds have seen a surge in inflows from investors led by higher-than-expected performance of companies in these segments. Many analysts have raised concerns over the valuation of small and mid-cap stocks which poses risks for investors. “In the context of froth building up in the small and mid-cap segments of the market and the continuing flows in the small and mid-cap schemes of mutual funds, trustees, in consultation with the Unitholder Protection Committee of the AMCs (Asset Management Companies), shall ensure that a policy is put in place to protect the interest of all investors,” AMFI wrote to its members in a letter written on February 27. AMFI, the mutual fund body, said that AMCs and fund managers should take appropriate and proactive measures to safeguard investors, including but not limited to moderating inflows, portfolio rebalancing, among others. “Steps to ensure that investors are protected from the first mover advantage of redeeming investors,” the letter said. Further, AMFI directed that the policy regarding this should be approved by trustees and disclosed on each mutual funds’ website within 21 days from February 27. In the past six months, the Nifty Smallcap 100 index has risen 33 per cent and Nifty Midcap 100 has surged 24.38 per cent. The growth in both the indices is much higher than the 14 per cent growth seen in the benchmark Nifty 50 in a similar period. Between August 2023 and January 2024, small-cap funds have seen net inflows of Rs 22,252.14 crore while mid-cap funds have witnessed inflows of Rs 13,042.1 crore, according to AMFI data. On the other hand, large cap funds have seen net inflows of around Rs 1,577.04 crore in the same period. Earlier this week, Kotak Mutual Fund in a note to investors said that it has limited the inflows in its small cap funds from March 4, 2024. “Systematic Investment Plan (SIP), or Systematic Transfer Plan (STP), or such other special products in Kotak Small Cap Fund would be limited to Rs 25,000 per PAN (first holder/Guardian) per month for daily, weekly, monthly and quarterly frequencies,” Kotak MF said. In case of lumpsum investments, inflows would be limited to Rs 2,00,000 per PAN per month. Last year, Nippon India Mutual Fund had also stopped accepting lumpsum investments in its small cap funds.
