Samvat 2080: 'Recency Bias' Driving Mid- And Small-Cap Fund Frenzy, Says AMFI Chief

The rush of funds into small-cap and mid-cap funds could be an outcome of 'recency bias', according to Navneet Munot, the recently appointed chairman of the Association of Mutual Funds of India.

While systematic investment plans hit a peak of Rs 16,000 crore in the month of September, a trend that has stood out in the last year has been investors' enthusiasm towards mid- and small-cap funds, Munot, who is also the managing director and chief executive officer of HDFC AMC, told BQ Prime.

Sample this: Net assets under management stood at a little over Rs 46 lakh crore as on Sept. 30. Of this, net AUM for small-cap funds grew by 48.8%, as against 12.1% for all open-ended schemes, according to AMFI data.

Small-cap schemes have recorded the highest amount of inflows this year, with nearly Rs 29,000 crore added from January to September. Large-cap funds recorded the highest outflows in the same period, losing over Rs 3,700 crore since January.

Fund flows are mirroring the performance of small-cap stocks. The Nifty SmallCap 250 has posted nearly 30% gains since January this year.

"Don't look at what happened in the last six months and extrapolate that to the next six months or year; look at the longer track record and your own risk appetite," Munot cautioned.

However, AMCs are realising that warnings may not suffice. In June this year, some funds stopped accepting lump sum payments. HDFC AMC's Defence Fund was among them. The fund stopped lump sum payments and restricted SIPs to Rs 10,000.

"We thought that given the universe and price rise in those stocks, investors need to take a longer term call," Munot said.

(With inputs from Chinmay Vasdev)