ICICI Prudential Mutual Fund Takes Measures to Curb Inflows into Mid and Small-Cap Funds

In response to escalating concerns over a potential bubble in the mid and small-cap segments of the market, ICICI Prudential Asset Management Company has implemented stringent measures to control inflows into its midcap and smallcap funds. Effective March 14, the fund house has halted fresh subscriptions through lump sum mode.

Commitment to Investor Protection

The decision to temporarily suspend lump sum investments and impose restrictions on systematic investment plans (SIPs) and systematic transfer plans (STPs) stems from the trustees’ commitment to safeguarding the interests of investors amidst volatile market conditions. This move comes in the wake of heightened scrutiny from regulatory body Securities and Exchange Board of India (SEBI), which has raised alarms regarding the soaring valuations and potential risks associated with mid and small-cap stocks.

Industry Trends

ICICI Prudential AMC‘s move is part of a broader trend within the mutual fund industry, where several leading fund houses have taken similar steps to mitigate the risks posed by the rapid influx of capital into mid and small-cap funds. The excessive flows into these segments have led to outperformance compared to large-cap stocks, resulting in stretched valuations and heightened market volatility.

Market Performance Analysis

According to data from the Nifty Midcap 150 Index and the Nifty Smallcap 250 Index, both indices have delivered significant returns over the past year, surpassing the Nifty 100 Index. Moreover, the current share of midcap and smallcap stocks in the total market capitalization is considerably higher than the 15-year average, indicating a potential overheating of these segments.

Staggered Investment Approach

The fund house has allowed existing SIPs and STPs to continue, it has capped fresh SIP and STP registrations at Rs 2 lakh per individual per month. Additionally, the SIP top-up facility will no longer be available for new registrations in these schemes. For quarterly SIPs, this cap is raised to Rs 6 lakh; however, for daily SIPs, it is limited to Rs 10,000. Furthermore, according to the fund business, some special features and offerings—like booster SIP, SIP top-up, freedom SIP, etc.—”will not be available for fresh SIPS/STPs registered in the schemes.”

Regulatory Intervention

The regulatory intervention from SEBI underscores the gravity of the situation, with the capital markets regulator flagging concerns about frothiness and potential price manipulation in the mid and small-cap segments. SEBI’s chairperson, Madhabi Puri Buch, has cautioned investors to exercise caution while investing in these riskier segments of the market.

Conclusion

ICICI Prudential Mutual Fund’s decision to impose restrictions on inflows into its midcap and smallcap funds reflects a proactive approach to risk management and investor protection. By prioritizing the stability of the market and the long-term interests of investors, the fund house sets a precedent for responsible fund management amidst evolving market dynamics.

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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.