ICICI Prudential Mutual Fund, the second-largest asset management company (AMC) in India, has temporarily suspended fresh subscriptions through lumpsum mode and switches into its midcap and small cap funds. The company cited the outperformance of midcap and small-cap stocks compared to large-caps, resulting in elevated valuations.
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The decision, effective from March 14, 2024, aligns with the industry trend, as several other major AMCs, including Nippon Mutual Fund, Tata Mutual Fund, and Kotak Mutual Fund, have taken similar steps to manage the influx of funds into mid and small-cap stocks.
Investors should note that fresh Systematic Investment Plans (SIP) and Systematic Transfer Plans (STP) up to ₹2 lakh per PAN per month will still be allowed. However, ongoing SIPs and STPs registered before March 14 will continue as usual in the affected schemes.
Industry analysts interpret this trend as a response to concerns about investors excessively allocating funds to small-cap stocks.
In the last 12 months, small-cap funds have seen significant net sales of ₹42,037 crore, and midcap funds attracted ₹23,346 crore as of February 2024.
This development follows a directive from the Securities and Exchange Board of India (SEBI) urging mutual funds to conduct stress tests on their small-cap and mid-cap funds.
The first set of stress test results is expected to be published by March 15, as instructed by the Association of Mutual Funds of India (AMFI).
SEBI Chairperson Madhabi Puri Buch recently announced a review of the investment rules for small- and mid-cap funds, expressing concerns about the market's overheating due to a boom in equities.
The regulatory body aims to protect investors from potential risks associated with the rising interest in these high-performing, albeit volatile, segments of the market.
About the funds
As of March 13, 2024, the Net Asset Value (NAV) of ICICI Prudential Smallcap Fund stands at ₹74.1300, with Asset Under Management (AUM) of ₹7,415 crore recorded as of February 29, 2024.
Established 16 years and 5 months ago, this fund has given 12.98% return since its inception.
| Time Period | 1-year | 3-year | 5-year | 7-year | 10-year | Since inception |
|---|---|---|---|---|---|---|
| Returns Percentage | 39.28% | 25.94% | 24.48% | 17.93% | 18.51% | 12.98% |
(Source: Value Research)
On the other hand, ICICI Prudential Midcap Fund has NAV of ₹237.3500 as of March 13, 2024, and an AUM of ₹5,484 crore as of February 29, 2024.
This fund, aged 19 years and 4 months, has delivered 17.75% return since inception.
| Time Period | 1-year | 3-year | 5-year | 7-year | 10-year | Since Inception |
|---|---|---|---|---|---|---|
| Returns Percentage | 47.57% | 22.33% | 20.04% | 16.34% | 20.00% | 17.75% |
(Source: Value Research)
Should investors worry?
While these funds have displayed strong historical performance, the move signals a cautious approach to manage potential risks associated with the current market dynamics.
Investors should assess their risk tolerance, investment goals, and overall portfolio diversification.
Diversifying across different asset classes and staying informed about market developments can help mitigate risks.
It's essential to note that this decision is a precautionary measure, and investors should stay vigilant, keep a long-term perspective, and seek professional financial advice if needed.
First Published: Mar 13, 2024 10:02 AM IST
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