It’s not just a bubble, rather froth building in small and mid cap segments!
There are two reports doing the rounds today that investors need to be aware of. The first one is about SEBI asking mutual fund houses to make investors more aware about the risks in small and mid cap funds. The report by news agency Reuters was published in media on Tuesday (February 27).
Further, the regulator has also been reportedly reviewing the stress tests conducted by small and mid cap funds that have seen high inflows.
Funds have been reportedly asked to disclose how long it might take to accommodate large redemptions and what impact large outflows could have on the value of portfolio. Also, how much cash and liquid assets funds hold to meet outflows.
The second report is about a letter by AMFI to mutual fund houses. The Association of Mutual Funds in India (AMFI) has asked Asset Management Companies (AMCs) to frame a policy to protect investors in small and mid cap segments.
AMFI’s instruction to AMCs comes in the backdrop of massive flows into mid cap and small cap mutual funds. The industry body noted that “in the context of the froth building up in small and midcap segments of the market”, AMCs should have a policy in place to protect the interest of all investors.
The massive flows into small and midcap funds have created a problem of fund deployment for many AMCs amid valuation distortions in small and mid cap segments.
Some AMCs have even restricted flows into their small cap funds. Kotak Small Cap Fund is the latest fund to do so.
AMFI sent a letter to AMCs after SEBI highlighted the issue of continuing flows to small and mid cap schemes.
In the letter dated February 27, AMFI said AMCs shall ensure that a policy is put in place to protect the interest of all investors, Moneycontrol reported.
AMFI has asked AMCs to take proactive measures to protect investors. And such measures should not be limited to moderating inflows and portfolio rebalancing only. AMCs are required to a frame a policy approved by Trustees for investor protection and display on their websites within 21 days.
Meanwhile, the report of SEBI asking AMCs to make small and mid cap investors more aware and AMFI’s letter apparently spooked the market today. The biggest beating was taken by the midcap and small cap shares. Small and mid cap indices fell around 2% during the day.
Disclaimer: The above content is for informational purposes only. Please consult a SEBI-registered investment advisor before investing in any mutual fund scheme
