Taking cognisance of the "heat," "bubble," or "irrational exuberance" in the mid-and small-cap segments, ICICI Prudential AMC announced on Tuesday, March 12, that it would stop taking lump sum investments into small and midcap funds temporarily, with effect from March 14 until the next circular on the same.

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From the cut-off time of 3 pm today, no lump-sum transaction in the company’s funds will be executed. Both the new and additional investments in the two fund categories shall be done away with for the time being, the AMC said. 

Besides ICICI Prudential AMC, SBI Mutual Fund, Nippon India Mutual Fund, Kotak AMC, and Tata Mutual Fund have also stopped fresh investments in small and midcap funds.

The frothy valuations in the mid-and small-cap segments have been the talking point in the financial ecosystem for quite some time. Sebi, in February, sounded the alarm and directed mutual fund regulatory body AMFI to take some pressing steps to prevent the potential damage. 

AMFI is an acronym for the Association of Mutual Funds in India.

In response to Sebi's letter, AMFI asked fund houses to moderate inflows into small and mid-cap funds and also instructed them to submit stress test results every 15 days. The first stress test results should be published by March 15. The stress test will shed light on the mutual fund’s liquidity.

Earlier, Sudip Bandyopadhyay of Inditrade Capital Limited, on Sebi's move, said that the step was timely and appropriate. The expert also added that the watchdog was in the best position to sound alarm bells on time.