Kotak Mahindra Mutual Fund has joined other asset management companies (AMCs) in restricting or halting lumpsum investments into their smallcap funds, citing concerns over the continued inflow into smallcap stocks.
Effective March 4, 2024, Kotak Mahindra Asset Management Company has temporarily limited subscriptions of units, including switch-ins, into its Kotak Small Cap Fund. The move aims to safeguard the interests of existing unitholders amidst a significant surge in smallcaps.
Under the new restrictions, lumpsum investments, additional investments, or switch-ins in the scheme are capped at Rs 2 lakh per PAN (Permanent Account Number) per month. However, Systematic Investment Plan (SIP) or Systematic Transfer Plan (STP) registrations will continue with a limit of Rs 25,000 per PAN per month.
The decision comes amidst a substantial rally in smallcap stocks, with the Nifty Small Cap 250 Total Return index returning 65.8 percent over the past year until February 21. Kotak Mahindra Mutual Fund noted that certain stocks in the smallcap and midcap segments have seen significant multiples, leading to valuation distortions.
Other mutual fund houses have also imposed restrictions on their smallcap funds in the past, including SBI Mutual Fund, Nippon India Life Asset Management, and Tata Mutual Fund, indicating concerns over investors’ heightened interest in smallcaps.
Kotak Small Cap Fund, currently the sixth largest scheme in its category with assets under management (AUM) of Rs 14,426 crore as of January end, has seen a notable increase in AUM since January 2021, reflecting growing investor interest in smallcaps. However, the fund advises investors to adopt a long-term perspective and be prepared for higher volatility typically associated with smallcap stocks.
