Nippon India Mutual Fund further restricts fresh SIPs in smallcap fund

India’s biggest smallcap scheme Nippon India Small Cap Fund has further lowered the maximum investment through fresh Systematic Investment Plans (SIPs) and Systematic Transfer Plans (STPs) to Rs 50,000 a day per PAN with effect from March 22.

The development comes within days of the release of the results of the first round of the mutual fund stress test for small and midcap funds.

“The step is warranted considering the recent sharp rally in the smallcap space and increased investor participation through high-ticket investments, which would be in the best interest of existing unit holders and appropriate for incremental investments,” the fund house said in a notice.

Nippon India Life Asset Management had in July 2023 stopped accepting lumpsum investments in the smallcap fund, which had Rs 46,000 crore worth of assets under management (AUM) at the end of February.

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The fund house had then limited fresh registrations via SIP or STP at Rs 5 lakh a day per PAN.

The fresh limit on the subscription of units has been proposed to facilitate the gradual deployment of the corpus to align with the nature of smallcap investing, the fund house said.

The fund house clarified that restrictions will not affect SIPs, STPs or other such special products registered before the effective date and the unitholders under the dividend reinvestment option.

Checking the flows

More fund houses are limiting investments in smallcap focused schemes.

In February, Kotak Mahindra Mutual Fund restricted fresh subscriptions through lumpsum investments and SIPs in its smallcap fund.

SBI MF suspended lumpsum investments in SBI Small Cap Fund in September 2020 and is currently accepting SIP investments of up to Rs 25,000.

Tata Mutual Fund also stopped lumpsum amounts and switch-in investments in Tata Small Cap in July.

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In the recently concluded first round of the mutual fund stress test, Nippon India Mutual Fund disclosed that it would take 27 days to sell off half of the portfolio of its smallcap fund.

The test result was largely in line with other major smallcap funds. A liquidation of 25 percent of its portfolio can be done in 13 days, it said.

When it comes to the midcap scheme, Nippon India Growth Fund would take seven days to offload 50 percent of its portfolio in the event of a sharp selloff in the market, while 25 percent portfolio liquidation would take four days.

Nippon India Growth Fund is among the top 10 midcap schemes with assets of Rs 24,481 crore as of February end.

Also read | There is more to MF stress test than liquidity: Tata MF’s Chandraprakash Padiyar

Revision in exit load structure

The fund also announced that under the revised exit load of Nippon India Small Cap Fund, the charge would be 1 percent if redeemed or switched out on or before the completion of one year from the date of allotment of units and nil thereafter.

Earlier, the scheme charged 1 percent exit load on redemption or switching out on or before the completion of one month from the date of allotment of units and nothing thereafter.