Mutual funds are facing a liquidity risk and some of concentration risk, said a Quantum AMC fund manager, after Securities and Exchange Board of India asked fund houses to proactively protect investor interest amid “froth” building up in the broader end of the Indian equity market.
“… The fund size in the small- and mid-cap space has ballooned,” said Abhilasha Satale, fund manager-equity at Quantum. “Some funds will also face concentration risk in underperforming sectors.”
She said a fund manager can cap the flow of funds through systematic investment plans and consolidate positions in times of heated valuations. Moreover, they can deploy capital in large caps (that can make up 35% of small-cap fund) and keep a portion in cash.
Quantum has avoided concentration and has diversified positions, Satale said.
The market regulator has asked mutual funds to act “in the context of froth building up in the small and mid-cap segments of the market and continuing flows in the small and mid-cap schemes of mutual funds”.
We have seen outsized allocations in small caps last year, just as the India stock market itself has grown, said Kaustubh Belapurkar, director-fund research at Morningstar India. “Some funds…
