Reliance Mutual Fund has suspended the sale of units of Reliance Small Cap Fund with effect from March 26, says an addendum on the fund house’s website.
Reliance Small Cap Fund has AUM of Rs.6,613 crore as on February 2018.
While the fund house has restricted fresh lump sum, it will continue to receive SIP of up to Rs.1 lakh. “Fresh/ additional subscriptions/switch-ins will not be allowed/ accepted at any point of time till further notice, from the effective date. Fresh registrations through Systematic Investment Plan (“SIP”) or Systematic Transfer Plan (“STP”) or such other special product shall continue with each installment being less than or equal to Rs. 1 lakh till further notice,” said the fund house.
Sharing the rationale, the fund house said that increasing size of the fund would prove detrimental to the interest of the existing unit holders.
A few small and mid-cap funds have earlier stopped fresh inflows into their schemes citing lack of buying opportunities.
In December, Mirae Asset Emerging Bluechip Fund had restricted SIPs to up to Rs.25,000 per instalment only on the 10th of each month. They had stopped lump sum investment in the fund in 2016. L&T Mutual Fund had also stopped fresh inflows in L&T Emerging Business Fund. On February 2017, DSP BlackRock Mutual Fund suspended the sale of units in DSP BlackRock Micro Cap Fund.
We spoke to leading advisors to understand what they should recommend their clients who have invested in these funds.
Vishal Dhawan of Plan Ahead said that investors should continue their SIPs at least for 7-10 years in small cap funds to get attractive returns. Dhawan recommends lump sum investors to invest in large cap fund considering the stretched valuations of small cap stocks.
Suresh Sadagopan of Ladder7 Financial Advisories feels that advisors should look at recommending mid-cap funds. “Investors have to check whether these small cap funds perform consistently. Investors with a high-risk appetite can go for mid-cap funds. I believe that small-cap funds are no different from mid-cap funds. Most investors have an illusion that the small-cap fund will always deliver higher returns than a mid-cap fund which is not true,” said Sadagopan.
