Fresh SIPs in India's largest small-cap scheme restricted to ₹50,000 a day

Nippon India Mutual Fund has reduced the maximum investment limits for its small-cap fund through fresh Systematic Investment Plans (SIPs) and Systematic Transfer Plans (STPs) to ₹50,000 per day per Permanent Account Number (PAN). The new restriction is effective from Friday (March 22).

Notably, Nippon India Small Cap Fund is India's largest smallcap scheme.

This decision closely follows the release of the results from the first round of mutual fund stress tests.

The fund house cited the need for this adjustment due to the recent significant rally observed in the small-cap market segment and the heightened involvement of investors making investments.

The fund house had previously halted lump sum investments in the small-cap fund in July 2023.

Additionally, fresh registrations via SIP or STP were capped at ₹5 lakh a day per PAN.

The newly proposed limit on unit subscriptions aims to enable a gradual deployment of the fund's corpus, aligning it with the typical nature of small-cap investing, as highlighted by the fund house.

These restrictions will not affect existing SIPs, STPs, or other special products registered before the effective date, nor will they impact unitholders under the dividend reinvestment option.

In tandem with these adjustments, Nippon India Mutual Fund has also announced modifications to the exit load structure for its Nippon India Small Cap Fund, effective from March 22, 2024.

The alteration involves shifting from the previous exit load policy of "1% for redemption within 30 days" to a revised structure of "1% for redemption within 1 year."

According to the stress-test report provided by Nippon India Mutual Fund, the fund anticipates a liquidation timeline of up to 27 days to divest 50% of the small-cap fund's holdings, with a shorter duration of 13 days for offloading 25% of assets.

Given the fund's portfolio, which encompasses more than 200 stocks, these stress test results hold significant implications.

It's worth noting that the disclosure of stress test outcomes by various fund houses follows directives from the Association of Mutual Funds in India (AMFI), emphasising industry-wide compliance with regulatory standards.