The small-cap segment has been on fire in recent times, but mutual fund houses won’t be launching many new fund offers (NFOs) in the space, said market experts.
“Going forward, there won’t be too many launches in the small-cap funds because everybody already has a scheme,” Dhirendra Kumar, Chief Executive Officer and Founder of Value Research said. He added that fund houses may have to resort to launching more index funds in the same space since there is no regulatory restriction on the latter.
In October, already 10 new fund offers are set to be launched. One already launched in the first week, while nine are ongoing. Out of these, there are two small-cap funds. Four of the active new fund offers are set to close on October 18, according to ICICI Direct.
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According to AMFI monthly data, around 163 open- and close-ended NFOs worth Rs 47,761 crore were launched during January to September 2023. Out of this, 128 open-ended schemes worth Rs 41, 787 crore were launched and 35 close-ended schemes worth Rs 5,974 crore were launched during this timeframe. According to reports, experts said that people with negligible exposure to small-caps can use this opportunity to subscribe to these new fund offers.
The reason why small-cap funds were launched is very straightforward, adds Kumar. “Investors chase recent past performance and fund companies are also chasing opportunities.” Over the last year, the BSE 250 Small Cap Index has given returns of 34.6%, compared to the 13.7% returns of BSE Sensex.
But some fund managers believe there could be a bit of correction in certain pockets, especially in stocks that have high valuations. They say that the market was earlier a little skewed towards mid- and small-caps, which led to an underperformance. However, at the current levels, one needs to be cautious, they said. “Investors with short-term horizon should refrain from investing in this category. However, investors with long-term horizon (five-10 years) and SIP, or systematic investment plans, may continue to remain invested,” Resham Jain, Vice President of Investments, DSP Mutual Fund said.
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Chirag Mehta, chief investment officer, Quantum AMC believes that fund houses that don’t have a small-cap scheme can create a good portfolio mindful of the risks that come with small-cap investing.
“Currently, given the robust economy we have there is a lot of activity on the ground translating to higher earnings for companies. That is where this rally is getting its roots from. So, we think it’s not exuberance, but backed by earnings growth.”
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