Updated February 27th, 2024 at 12:59 IST

Kotak Mahindra MF imposes limits on smallcap fund investments

Multiple mutual funds, including SBI MF, Nippon India MF, and Tata MF, have previously implemented restrictions on investments in their smallcap funds.

Reported by: Business Desk
Representative | Image:Freepik

Restrictions on smallcaps: Kotak Mahindra Mutual Fund has imposed restrictions on investments in its smallcap fund, aligning with a trend observed across various asset management companies (AMCs). Highlighting concerns over the escalating inflow into smallcap stocks, the fund has decided to temporarily limit the subscription of units for its Kotak Small Cap Fund, with the new measures set to take effect from March 4, 2024.

According to the fund house, the primary objective behind this move is to safeguard the interests of existing unitholders amidst the recent surge in smallcap investments. By imposing restrictions on lumpsum investments, including additional investments and switch-ins, Kotak Mahindra Mutual Fund aims to ensure that incremental investments are made judiciously. Under the new guidelines, these lumpsum investments are capped at Rs 2 lakh per PAN (Permanent Account Number) per month.

Investment plan limits

While the restrictions apply to lumpsum investments, registrations for Systematic Investment Plans (SIPs) or Systematic Transfer Plans (STPs) will continue, albeit with a limit of Rs 25,000 per PAN per month.

Kotak Mahindra Mutual Fund attributes the decision to the significant surge witnessed in certain smallcap and midcap stocks, which has led to valuation distortions. The fund emphasises that retail investors now hold a substantial portion of the smallcap segment, sometimes exceeding institutional ownership. This trend, coupled with momentum-driven investing and limited free float in the market, has contributed to challenges in valuing smallcap stocks accurately.

The fund house plans to review the situation in the second quarter of the calendar year, taking into account evolving market dynamics. The recent surge in smallcap investments reflects a broader trend in the mutual fund industry, with smallcap funds witnessing substantial inflows compared to largecap funds.

Growth and volatility

Kotak Small Cap Fund, with an Assets Under Management (AUM) of Rs 14,426 crore as of January, has experienced substantial growth in recent years. Despite its strong performance, investors are reminded of the inherent volatility associated with smallcap stocks and the importance of maintaining a long-term investment horizon.

The decision by Kotak Mahindra Mutual Fund to impose restrictions echoes similar actions taken by other fund houses in response to concerns about investor exuberance in the smallcap segment.



Published February 27th, 2024 at 12:59 IST