Smallcap MFS see 1st net outflows in 30 mths

Smallcap mutual funds recorded net outflows for the first time in 30 months in March as investors pulled out money after the markets regulator, the Securities and Exchange Board of India (Sebi), warned against “froth” in the mid and smallcap space.

Active equity mutual fund (MF) schemes raked in ~22,600 crore in March. The March inflow is 16 per cent lower than the two-year high inflow of ~26,860 crore in February, shows data from the Association of MFS in India (Amfi). The inflows were supported by the ~19,270 crore gross inflows through the systematic investment plan (SIP) route. According to MF executives, the outflow from smallcap funds could be due to portfolio rebalancing. “Rising market led to profit booking by investors while SIPS continue to be encouraging. We witnessed investment rebalancing where investors seem to have moved from smallcap schemes to largecap,” said Manish Mehta, national head - sales, marketing & digital business, Kotak Mahindra AMC.

Largecap and flexicap schemes have seen a surge in inflows in the past three months amid declining interest in smallcap and midcap funds, which were raking in the bulk of the flows in 2023 (CY23).

The flows dipped after Sebi and Amfi asked MFS to take steps to ensure investors are protected from the froth, which was building up in the small and midcap segment.

“While till February, equity inflows predominantly favoured mid and smallcap funds, we have seen a slight halt in March. Many investors gravitated towards smallcap funds, driven by high return prospects, however, a disproportionate allocation to such funds can be risky in the long run,” said Swarup Mohanty, V-C and CEO, Mirae Asset Investment Managers.