Kotak MF first to lift curbs on investing in small-cap fund

Kotak Small Cap Fund delivered a return of 46% in the past 12 months and manages assets of  ₹15,283 crore.. / AFP PHOTO / INDRANIL MUKHERJEE
Kotak Small Cap Fund delivered a return of 46% in the past 12 months and manages assets of 15,283 crore.. / AFP PHOTO / INDRANIL MUKHERJEE

Summary

  • The AMC said small-cap earnings are growing faster than that of large-caps
  • It also said investors should moderate expectations from the small-cap segment, keep a long time frame, and practice asset allocation

Kotak Mahindra Mutual Fund has resumed accepting lump sum investments in its Small Cap Fund, signalling renewed confidence in the investment climate post-Lok Sabha election results and amid accelerating corporate earnings growth in the small-cap sector.

This move comes after a four-month hiatus aimed at curbing high valuations and limited investment opportunities in the small-cap segment.

Kotak is the first major fund to lift restrictions imposed on March 4. ICICI Prudential, Nippon India, SBI Mutual Fund, and Tata Mutual Fund had also restricted or halted subscriptions in their small-cap schemes as of March 2024, largely due to Securities and Exchange Board of India's discomfort with the huge retail investments in small- and mid-cap funds.

"Since the election event is over and small-cap earnings are growing faster than large-caps, we are reopening the fund to lump sums. SIPs were already allowed," said Nilesh Shah, managing director of Kotak Mahindra Asset Management. Shah advised investors to manage their expectations, adopt a long-term perspective, and adhere to disciplined asset allocation.

Also Read | A blip, not a trend: Smallcaps remain the flavour despite recent shift

Effective 2 July, Kotak Mahindra's Small Cap Fund will accept new investments via lump sum, systematic investment plans (SIPs), systematic transfer plans (STPs), and other special products, the fund announced on its website on 1 July.

“Most small-cap funds suspended acceptance of fresh inflows citing limited deployment opportunities, especially on account of the perception of stretched valuations. Back then, along with a variety of macro events on the horizon, the general election was a key variable that the overall macros were highly sensitive to," said Nirav Karkera, head of research at Fisdom, a Bengaluru-based wealthtech startup.

“The latest set of earnings posted and incremental confidence on macros seem to have extended support to the investment case for several pockets in the small-cap segment."

The market regulator had previously asked small- and mid-cap funds to conduct stress tests to assess their liquidity positions.

The Kotak Small Cap Fund has delivered a robust 46% return over the past 12 months and manages assets worth 15,283 crore, according to Value Research. In February, when announcing the initial restrictions, Kotak had limited lump sum investments at 200,000 per month and SIP contributions at 25,000 per month.

The lifting of these curbs marks a notable shift in market sentiment and indicates optimism about the sector's growth prospects in the near term.

Also Read: Retail investors and the fixation with equity MFs

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