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Large investor concentration in smallcap funds at 14-month low, shows data
The share of investments held by the top 10 investors across smallcap mutual fund schemes has been on a decline, falling to a 14-month low in March 2025, shows an analysis of data from the Association of Mutual Funds in India (Amfi).
The median smallcap scheme has 2.03 per cent of its investments coming from the top 10 investors, compared to 2.43 per cent a year ago. The reduction comes as smallcaps have fallen twice as much as largecaps in the recent market decline.
The BSE SmallCap index is down 16.6 per cent compared to 6.6 per cent fall in the BSE Sensex from their respective all-time highs.
The reduction in investor concentration gains significance as smallcap companies tend to see a decline in liquidity during downturns. This can affect a scheme's ability to exit stocks.
Lower concentration reduces the risk of having to sell positions at a lower price to meet redemptions, potentially worsening the decline for those remaining in the fund.
The median is the middle value of the 30 smallcap funds for which data is available. Some funds have significantly higher concentration. This includes the ITI Small Cap Fund (19.92 per cent from top 10 investors) and Trust MF Small Cap Fund (22.83 per cent from the top 10). Stress tests show that the Trust Small Cap MF scheme can liquidate 50 per cent within a single day (compared to a median of seven days for other schemes), said Trust Mutual Fund chief executive officer (CEO) Sandeep Bagla.
The Trust MF fund was launched only in November 2024. It is also smaller in size than other funds. Both these factors may have contributed to the relatively higher weight of larger investors, said Bagla. Some of the initial investors are often entities writing checks worth ₹5 crore or more which come in through wealth managers and other large distributors. The large initial investments would translate into greater concentration for a smaller fund. The concentration declines as more investors come in, according to Bagla.
Indeed, disclosures show that concentration of the top 10 investors was as high as 29.37 per cent in November 2024, and has come down since to 22.83 per cent even as the assets rose from ₹405.1 crore to ₹817.1 crore as of March-end. 'We do not have concerns on liquidity,' said Bagla.
A query sent to ITI did not elicit a response.
ITI Small Cap Fund can, similarly, liquidate 50 per cent of its portfolio in two days even under stress conditions compared to the median seven days.
The median days for 50 per cent liquidation for the smallcap segment were similar to the 6.5 days seen in February.
Kartik Jhaveri, director, Transcend Capital, said that advisors and distributors generally avoid new funds till they build a track record. While concentration can be one more metric to consider, others like historical volatility and performance tend to take precedence, he said. 'Investors tend to focus on returns,' he said. Smallcap funds are sitting on nearly 7.4 per cent cash as a percentage of total assets in March, though it has come down from the 9 per cent level seen in February. In other words, smallcap schemes are sitting on funds worth ₹21,720 crore as of March and they can be deployed on declines or used to meet redemptions.
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