Now Reading: Small-cap funds hit record inflows, SEBI flags liquidity risk
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Small-cap funds hit record inflows, SEBI flags liquidity risk
Net inflows into small-cap mutual funds hit a record Rs 7,768 crore in July, even as overall equity inflows fell 15% to Rs 24,697 crore, according to data from the Association of…
The Story in Brief
Net inflows into small-cap mutual funds hit a record Rs 7,768 crore in July, even as overall equity inflows fell 15% to Rs 24,697 crore, according to data from the Association of Mutual Funds in India. But a SEBI annual report cited by Livemint reveals that the top 10 small-cap schemes took an average of 38 days to sell half their portfolios in March 2026, compared with 17 days for mid-cap funds. Among the top five small-cap funds, the liquidation time stretched to 51 days.
Experts quoted by Livemint caution that lower liquidity in small-caps can force fund managers to sell at lower prices during heavy redemptions, hurting all investors. While the AMFI monthly stress tests are hypothetical, investors should watch for consistently rising liquidation times, which signal growing exposure to illiquid stocks.
The Indian Opinion
The frenzy around small-cap funds ignores the sobering data from SEBI's own stress tests. Investors are chasing returns while the top schemes take 51 days to sell half their holdings. The narrative that 'money follows performance' is true, but it is also a recipe for trouble when the cycle turns. The real test will come when redemptions spike and those liquidation days become a painful reality.
Sources (2): livemint.com, rediff.com
This story was synthesised by AI from the 2 sources linked above.
Updated: this story now draws on 2 sources.
