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SBI Small Cap Fund to stop lump sum investment from 7 September

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SBI Small Cap Fund is closing itself to lump sum investments from 7 September, just around five months after it reopened to them on 30 March. Further, it will only accept systematic investment plans (SIPs) of up to 5,000 per investor.

“The fund size has now gone past 5,000 crore. The market has also run up and there are capacity constraints in small-cap companies. We want to make sure that existing investors don’t suffer due to these constraints,” said D.P. Singh, chief business officer, SBI Mutual Fund

The scheme saw a net inflow of almost 800 crore between February and July 2020, a jump of around 22%, according to data from Value Research. The jump in flows was accompanied by a powerful rally in mid- and small-caps.

Mid- and small-cap funds on average are up 27.10% and 20.19%, respectively, compared to 13.7% for large-cap funds. The rally has come despite India’s economy being badly hit by the covid-19 pandemic. GDP for the April to June quarter contracted by 22.6% in nominal terms.

In the past, fund closures have acted as rough signals of market peaks. DSP Small Cap Fund closed itself to lump sum investments in February 2017. The mid- and small-cap space peaked relative to large-caps towards the end of that year.

SBI Small Cap has rallied by 5.92% over the past six months. A rush of flows has also swollen its size. It’s assets under management have grown from 3,476 crore at the end of February 2020 to 4,270 crore as on 31 July.

This is the second such stoppage in the fund’s history after an initial closure from 2015 to 2020. In 2015, it had hit a maximum limit of 750 specified by its own scheme information document (SID).

DSP Small Cap Fund and Nippon Small Cap Fund also opened themselves to lumpsum investments in April 2020. The two schemes have delivered 5.71% and 6.39%, respectively, over the past six months.

However, they have not seen similar levels of inflows. Nippon India Small Cap Fund saw its AUM shrink from 8,567 crore to 8,322 crore from 29 February to 31 July. DSP Small Cap Fund saw its size shrink from 5,045 crore on 29 February to 4,650 crore as on 31 July.

“It’s a signal of SBI’s view of small-caps. But coming from the largest fund house in India, it carries weight. You should tone down your exposure or restrict exposure to small-caps from here on,” said Amol Joshi, founder, Plan Rupee Investment Services.

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