New Delhi: Inflow of inflows, surge in participation by retail investors and bullish market conditions have pushed assets of the small-cap mutual fund category to Rs 2.43 lakh crore at the end of March 2024, an increase of 83 per cent compared to There is increase. Last year.
The growth in assets was complemented by a rise in the number of investors, with the number of folios reaching 1.9 crore in March 2024 from 1.09 crore a year ago, adding to an investor base of 81 lakh. This reflects investors' inclination towards small-cap funds.
Gopal Kavalireddy, vice-president-research, FYERS, said the growth trajectory of India's economy is attracting increasing interest, leading to unlisted small-cap companies seeking support from the capital markets.This trend offers promising opportunities for investors with an eye on long-term growth prospects.
However, factors like general elections, monsoon forecast, economic activity, inflation, GDP estimates and FY25 earnings growth may not impact small-cap company valuations and create volatility in the segment, he said.
In fiscal 2023-24, small-cap funds saw inflows of Rs 40,18 crore, higher than the inflows of Rs 22,103 crore seen in the previous fiscal.
However, the month of March saw a net outflow of Rs 94 crore into small-cap funds for the first time in two years.
In late February, market regulator SEBI had expressed concern over the growing foam in small- and mid-cap funds and directed mutual fund houses to prepare a framework to protect the interests of investors investing in these funds.This concern comes in the backdrop of huge inflows into small and mid-cap schemes of mutual funds in the last few quarters.
Assets under management (AUM) of small-cap mutual funds reached an all-time high of Rs 2.43 lakh crore at the end of March 2023, compared to Rs 1.33 lakh crore, according to Association of Mutual Funds in India (AMFI) data. I March 2022.
Kavalireddy attributed the huge surge in assets to several factors such as attractive returns, positive investor sentiment, portfolio diversification and increase in retail participation.
“The smallcap index is projected to grow 60 per cent in FY24, accounting for the bulk of the growth in AUM,” said Jay Shah, Founder and CEO, Finvisors.
Furthermore, the prevailing positive sentiment among investors, driven by strong economic activity and earnings growth, has been a major factor increasing allocation towards small-cap funds.Additionally, small-cap funds gained popularity as an attractive element of diversified portfolios, benefiting from the significant growth seen in FY2013 amid inflows into equities and their ability to depreciate.
Overall, AUM of equity-oriented mutual fund categories grew 55 per cent to Rs 23.50 lakh crore in FY24 due to strong inflows and mark-to-mark gains. The category saw a net inflow of Rs 1.84 lakh crore in FY24, compared to Rs 1.47 lakh crore in the previous fiscal.
Under SEBI regulations, in small-cap mutual funds, fund managers are required to invest at least 65 percent of their portfolio in small-cap stocks.
Looking at FY25, Finvisor's Shah said, "Smallcap returns are not only a result of market sentiment but also strong earnings growth.However, it has been historically observed that periods of euphoria are followed by periods of low returns. Accordingly for FY25, negative t low returns are most likely”.
Although small-cap funds offer attractive growth prospects, they come with increased volatility, low liquidity, unpredictable market risk, and limited research coverage.
Therefore, industry experts suggested that it is important for investors to thoroughly assess their risk tolerance and investment horizon before considering investing in this sector.
The growth in assets was complemented by a rise in the number of investors, with the number of folios reaching 1.9 crore in March 2024 from 1.09 crore a year ago, adding to an investor base of 81 lakh. This reflects investors' inclination towards small-cap funds.
Gopal Kavalireddy, vice-president-research, FYERS, said the growth trajectory of India's economy is attracting increasing interest, leading to unlisted small-cap companies seeking support from the capital markets.This trend offers promising opportunities for investors with an eye on long-term growth prospects.
However, factors like general elections, monsoon forecast, economic activity, inflation, GDP estimates and FY25 earnings growth may not impact small-cap company valuations and create volatility in the segment, he said.
In fiscal 2023-24, small-cap funds saw inflows of Rs 40,18 crore, higher than the inflows of Rs 22,103 crore seen in the previous fiscal.
However, the month of March saw a net outflow of Rs 94 crore into small-cap funds for the first time in two years.
In late February, market regulator SEBI had expressed concern over the growing foam in small- and mid-cap funds and directed mutual fund houses to prepare a framework to protect the interests of investors investing in these funds.This concern comes in the backdrop of huge inflows into small and mid-cap schemes of mutual funds in the last few quarters.
Assets under management (AUM) of small-cap mutual funds reached an all-time high of Rs 2.43 lakh crore at the end of March 2023, compared to Rs 1.33 lakh crore, according to Association of Mutual Funds in India (AMFI) data. I March 2022.
Kavalireddy attributed the huge surge in assets to several factors such as attractive returns, positive investor sentiment, portfolio diversification and increase in retail participation.
“The smallcap index is projected to grow 60 per cent in FY24, accounting for the bulk of the growth in AUM,” said Jay Shah, Founder and CEO, Finvisors.
Furthermore, the prevailing positive sentiment among investors, driven by strong economic activity and earnings growth, has been a major factor increasing allocation towards small-cap funds.Additionally, small-cap funds gained popularity as an attractive element of diversified portfolios, benefiting from the significant growth seen in FY2013 amid inflows into equities and their ability to depreciate.
Overall, AUM of equity-oriented mutual fund categories grew 55 per cent to Rs 23.50 lakh crore in FY24 due to strong inflows and mark-to-mark gains. The category saw a net inflow of Rs 1.84 lakh crore in FY24, compared to Rs 1.47 lakh crore in the previous fiscal.
Under SEBI regulations, in small-cap mutual funds, fund managers are required to invest at least 65 percent of their portfolio in small-cap stocks.
Looking at FY25, Finvisor's Shah said, "Smallcap returns are not only a result of market sentiment but also strong earnings growth.However, it has been historically observed that periods of euphoria are followed by periods of low returns. Accordingly for FY25, negative t low returns are most likely”.
Although small-cap funds offer attractive growth prospects, they come with increased volatility, low liquidity, unpredictable market risk, and limited research coverage.
Therefore, industry experts suggested that it is important for investors to thoroughly assess their risk tolerance and investment horizon before considering investing in this sector.
