The net inflow in the small-cap mutual funds increased 58 per cent in the June quarter to ₹10,936 crore against ₹6,932 crore in March quarter as the euphoria on the small-caps making it big in the growing economy hit a new high along with market barometer Sensex.
The overall asset under management of 24 small cap funds have jumped 26 per cent in the June quarter to ₹1.68 lakh crore against ₹1.33 lakh crore logged in March quarter, according to data sourced from the Association of Mutual Funds in India.
Even while the fresh money was flowing into small cap funds, seasoned investors were booking their profit while led to redemptions increase 37 per cent to ₹5,140 crore in June quarter against ₹3,760 crore in March quarter.
Investors have been flocking the small-cap funds as the Nifty Small Cap 100 index has delivered a return of 15 per cent so far this year, almost double than that of benchmark Nifty 50.
NS Venkatesh, Chief Executive Officer (CEO), AMFI said people investing in small cap funds are fully aware of the risk involved as fund houses have displayed it through risk-o-meter and scheme documents.
The frenzy among investors is so high that they are booking profit from large cap funds and putting it the small cap fund because they feel there is a potential to make more gains in the small cap funds, he said.
Unable to manage the heady flows into small cap funds most of the top fund houses have restricted inflows as most top performing small cap stocks are illiquid in nature.
Ashwini Kumar, Head - Market Data, ICRA Analytics said the inflow into the small-cap segment has increased largely due to the comparative high valuations of mid- and large-cap stocks. Investors are seeking comparative valuations and exploring opportunities in this space, he said.
However, he added it is important to exercise caution and conduct thorough analysis before making investment decisions.
Nirav Karkera, Head of Research, Fisdom said with heavy inflows chasing almost all companies commonly perceived as attractive, many fund managers may not be comfortable with the idea of continued investing at such higher valuations but other fund managers may like to go beyond the select clutch of high-quality companies to identify more opportunities at relatively reasonable valuations.
In light of the expansionary phase that the economy is in and the capital flows directed to this segment, one can expect the uptick to sustain for a little longer than expected, he said.