ICICI Prudential Hits Pause on Lump Sum Investments in Small & Mid Cap Funds

13 Mar 2024 , 09:39 AM

ICICI Prudential Mutual Fund, the second-largest fund house in India with assets totaling ₹6.63 lakh Crore, has made an important announcement. Effective March 14, 2024, the fund will temporarily halt fresh subscriptions through lump sum mode and switches into its ICICI Prudential Small Cap Fund (IPSCF) and ICICI Prudential Midcap Fund (IPMCF).

While new Systematic Investment Plans (SIP) and Systematic Transfer Plans (STP) will be capped at ₹2 lakh per PAN (Permanent Account Number) per month, existing SIPs and STPs registered before March 14 will continue as usual, as confirmed by ICICI Prudential MF.

This decision to suspend fresh subscriptions stems from the fact that midcap and small-cap stocks have been outperforming large-caps, leading to inflated valuations. With the share of mid and small-cap stocks in the total market capitalization on the rise, valuations in these segments have become relatively higher.

Despite not being among the largest schemes in their category, IPSCF and IPMCF manage substantial corpus sizes of ₹7,415 Crore and ₹5,484 Crore, respectively. Recent months have seen heightened awareness in the mutual fund industry regarding the growing illiquidity in the small- and mid-cap segments of the stock market due to the continuous rise in market levels.

Prompted by these concerns, the Securities and Exchange Board of India (SEBI) instructed mutual funds in late February to conduct stress tests on their small-cap and mid-cap funds. Accordingly, the Association of Mutual Funds of India (AMFI) has directed fund houses to provide stress test results every 15 days, with the first set of results expected by March 15.

These stress tests essentially determine the liquidity of a portfolio, shedding light on how quickly investors can withdraw their funds, especially in the event of a market downturn and a surge in redemption requests.