Fresh Inflows Into Tata Small Cap Fund Have Been Suspended by the Fund House

Tata Mutual Fund has decided to stop fresh inflows into Tata Small Cap Fund. The Scheme aims to generate long term capital appreciation by predominantly investing in equity and equity related instruments of small cap companies. The performance is benchmarked against the Nifty Smallcap 250 Index.

According to Association of Mutual Fund of India (AMFI) monthly report, in May 2023 the Small cap category witnessed the highest inflows of Rs 3,282 crore. As a result, the valuations of small-cap stocks have increased which creates concerns that if inflows continue at this pace, there could be a challenge in deployment of these funds.

A mutual fund house restricts inflows into a scheme when they are unable to find enough opportunity to deploy the cash. There are two such incidents:

1. When a fund house receives an excess of cash inflows as a result of significant investor demand, particularly when the fund outperforms its category, and it is challenging for the fund management to employ the funds.

2. When the investment universe is limited, and if the fund manager cannot locate appealing investment possibilities inside the specified investment universe, it may be challenging to deploy the excess cash.

[Read: HDFC Mutual Fund Restricts Lumpsum Investments in HDFC Defence Fund Here’s Why]

Since Tata Mutual Fund appears to be a victim of the first scenario of excessive inflows, it decided to stop new investments in Tata Small Cap Fund. Previously, SBI Mutual Fund one of the largest fund houses had also suspended lump-sum investments in its small-cap fund and capped SIP investment at Rs 25,000.

Consequently, the halt on fresh inflows of Tata Small Cap Fund will come into effect from July 01, 2023 and will stay effective until further notice. This is applicable only for the lump-sum and switch-in applications for the scheme. The fund house stated that existing Systematic Investment Plans (SIPs) and requests for new ones will continue.