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Small-cap mutual fund inflows moderate by 10% in February amid large-scale redemption

Inflows into small-cap mutual fund schemes moderated by 10 per cent last month to ₹2,922 crore against ₹3,257 crore in January due to large-scale redemption amid concern over high valuation and strong signals from SEBI on the froth developing in these schemes.

The redemption from small-cap schemes increased five per cent to ₹3,975 crore last month against ₹3,777 crore logged in January, according to the Association of Mutual Funds in India data released on Friday.

Inflows into the mid-cap schemes also declined 12 per cent to ₹1,808 crore (₹2,061 crore). Overall equity inflows were up at ₹26,866 crore (₹21,781 crore) on the back of robust new fund offers, which collected ₹11,720 crore (₹6,817 crore).

Venkat Chalasani, CEO of AMFI , said the intention of the regulator and the industry is not to stop inflow into small-cap funds but to enhance disclosure and transparency so that investors can make informed decisions while investing in these funds.

The recent measures taken around mid- and small-cap funds are an ongoing process and part of the risk management framework, which considers liquidity, volatility and transparency, he added.

“I believe inflows into small-cap funds will continue in a calibrated manner after proper disclosure by the fund houses and individual mutual fund will take the call on how to handle it based on their own assessment,” he said.

If the risk management of other schemes calls for disclosures like that of small caps, they will be taken after discussion in the risk management committee meeting, said Chalasani, as the ultimate aim of the industry is to protect investors’ interests.

Large-cap schemes growth

Interestingly, investments in large and mid-cap schemes increased to ₹3,157 crore (₹2,330 crore) while thematic stole show with an inflow of ₹11,263 crore (₹2,330 crore) aided by five new fund offers collecting ₹7,178 crore.

Melvyn Santarita, Analyst at Morningstar Investment, said the dip in small-cap inflows was due to redemptions which were the third largest among the equity schemes, as investors opted to book profits on this category’s better performance .

SIP inflows rise

Inflows through the Systematic Investment Plan were up at ₹19,186 crore (₹18,838 crore), with the highest-ever SIP assets under the management of ₹10.52 lakh crores (₹10.27 lakh crore).

Investments in debt funds fell to ₹63,809 crore (₹76,469 crore). The total AUM of mutual funds was up three per cent last month at ₹54.54 lakh crore compared to ₹52.74 lakh crore in January.

Anand Vardarajan, Business Head at Tata Asset Management, said the tight liquidity situation has led to higher yields in the debt market, even as investors now seem more constructive about taking exposure in medium and longer-duration debt funds. This was visible in flows seen in short-term, corporate bond, and long-duration funds.

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