Reliance Small Cap Fund- Direct, rated 5-star by Groww, has been one of the best performing small cap funds. This fund has performed exceedingly well, beating the benchmark by a good margin.
Recently, the fund has been in the news as it stopped accepting lump-sum investments. Moreover, it also limited the maximum amount of SIP that is allowed to be invested per month.
Suspension of Fresh Capital in Reliance Small Cap Fund
The fund has stopped accepting investments/subscription via the lump-sum route after March 26, 2018.
However, investors will be able to invest via the Systematic Investment Plan (SIP) or Systematic Transfer Plan (STP) plan up to a maximum amount of ₹100,000 per month.
According to the official website of the fund house- “the limit on subscriptions of units has been done with a view that increasing the size of the corpus of scheme may prove detrimental to existing unit holders of the scheme.”
This comes in wake of the huge inflow of money into the small and mid-cap equity funds, especially on account of the good performance of these funds last year.
It is interesting to note that a large portion of this inflow has been coming from individual/retail investors.
The AMC managing this fund, Reliance Nippon Asset Management Limited, stated that the measure imposing a limit on SIP and stopping lump-sum subscription has been done to stop rapid increase in the size of the fund’s corpus.
The AMC believes that if the size of the corpus increases any more, then it could be detrimental to the interests of the investors of the fund.
The scheme has Assets under Management exceeding ₹6000-crore mark. This figure is huge for investing in small-cap stocks which come with high-risk and high-return.
Investing for the sake of deploying surplus funds is not a good idea and a very risky one at that. On the flip side, funds have a certain cost (sometimes opportunity cost) attached to them and keeping them idle is not a good idea either.
As per Mr. Amol Joshi, Founder, Plan Rupee Investments, “Due to rising inflows into small-cap funds on account of good past performance, fund managers are finding it difficult to spot enough new opportunities and hence putting a cap will help protect existing investors.”
Other Funds Which Have Taken Similar Measures
Reliance Small Cap Fund is not the only fund to have taken such a measure. In the last couple of months/quarters, a lot of funds have taken similar measures, limiting or stopping new investments in their funds.
Mirae Asset Emerging Bluechip Fund, in December, had put a limit on the maximum amount of SIP, restricting it to ₹25,000 per installment.
Moreover, the fund house had stopped lump-sum investment in this scheme as early as 2016.
A similar measure for DSP Blackrock Micro Cap Fund was also taken.
Impact on Existing Investors
The fund house informed that the above measure restricting new lump-sum and SIP investments shall have no bearing and impact on the existing unitholders of the fund.
For all units registered with the fund before the effective date- March 26, 2018, the SIP and STP schemes shall continue without any change.
Also, the old dividend reinvestment and pay-out plans shall remain unaffected by this new measure. Also, the terms and conditions, other features of this scheme remain unchanged.
Therefore, existing investors do not need to worry.
They could, however, re-evaluate their investment position on the background of lack of new investment opportunities with the fund. But as the fund is stopping new investments it will be in a position to efficiently utilize its funds.
New investors, naturally, shall not be able to invest in this scheme via the lump-sum route and greater than ₹1 lakhs per month via the SIP route.
Investing in Reliance Small Cap Fund- Direct
Investment can be made in this mutual fund with the help of Groww platform.
Simply log in to your account, choose the fund – Reliance Small Cap Fund – make payment and start SIP!
About Reliance Small Cap Fund – Direct
It’s 1-year, 3-year and 5-year returns have been excellent at 27.11%, 25.05%, and 38.36% p.a. respectively.
The total Assets under Management (AUM) of this fund are around ₹6400 crores. Being a small-cap equity fund, the fund belongs to the high-risk category.
The primary investment objective of the scheme is to generate long-term capital appreciation by investing predominantly in equity and equity related instruments of small cap companies.
The secondary objective is to generate consistent returns by investing in debt and money market securities.
The investments of this fund are spread across sectors spanning Consumer Goods, Financial Services, Chemicals, Textiles, Industrial Manufacturing, and Construction among others.
Some of the top holdings of Reliance Small Cap Fund are- RBL Bank Limited, West Coast Paper Mills Limited, Sterlite Technologies Limited, FDC Limited, United Breweries Limited, Orient Cement Limited, and HDFC Bank among others.
One of the USPs of this fund is that it is one of the few funds which allow an SIP amount as low as ₹100 per month.
Disclaimer: the views expressed here are of the author and do not reflect those of Groww.