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Fund managers at Quantum AMC have said that mutual funds should not be liquidated after the Securities and Exchange Board of India asked fund houses to proactively protect investors’ interests amid widespread ‘foam’ in the Indian stock market. He said they face sexual risks and some concentration risks. .
“…the size of funds in the small and mid-cap space has ballooned,” said Abhilasha Satale, equity fund manager at Quantum. “Some funds will also face concentration risk in unprofitable sectors.”
He said fund managers can limit the flow of money through systematic investment plans and consolidate positions when valuations soar. Additionally, you can invest your capital in large-cap stocks (sometimes his 35% in small-cap funds) and keep some in cash.
Quantum is diversifying its positions to avoid concentration, Satale said.
The market regulator has asked mutual funds to act “in view of the bubbles rising in the small and mid-cap segment of the market and continued flow of funds into small and mid-cap schemes of mutual funds.”
Kaustubh Belapurkar, director of fund research at Morningstar India, said last year saw heavy investment in small-cap stocks, just as the Indian stock market itself grew. “Some funds are seeing a large portion of their inflows into the SMID space, which is interesting.”
Stress tests are performed by fund companies to evaluate their own risk and return, but for individual investors, they are used to consider their individual risk and return goals.
“There is overexposure to small and mid-cap stocks because they look attractive from a historical return perspective. Now is the time to reduce that,” he said. “Focus on asset allocation and leave risk management to the fund manager.”
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