Personal Finance

SBI Small Cap Fund reopened for lumpsum investment. Should you invest?

SBI Mutual Fund has reopened its small cap scheme – SBI Small Cap Fund – for lumpsum investment after a gap of over four years. The fund hosue had stopped lumpsum investments in October 30, 2015, to stop huge inflows into the scheme at a time of high valuations in the small cap space. The fund house will allow lumpsum investments in the scheme from today. The fund house has put a limit of Rs 1,000 crore to the lumpsum inflows.

“SBI MF had stopped the lumpsum investments for two reasons. One, the valuations in the small cap space were really high and there was a lot of money chasing a limited space of good opportunities. Now, they have opened the lumpsum investments because the small cap space is down 50% from its peak,” says Babu Krishnamoorthy, Chief Sherpa, FinSherpa, a financial advisory firm based in Chennai.

The 50%-fall in the small cap space might look like a gerat opportunity to enter the univesre, but mutual fund adviosrs are asking investors proceed cautiously. “The valuations are really attractive, but should investors jump at the opportunity? I think NO,” says Babu Krishnamoorthy.

Advisors believe the small cap space has become riskier in the last couple of months despite the cheaper valuations. The Covid-19 pandemic has hit many businesses very hard and committing a lumpsum at this juncture in the market will be a very risky preposition.

“Right now, the biggest companies and the biggest economies have been hit badly, but the chances of small caps bouncing back are way lower than the bigger companies. In India, we expect the small companies to be the worst hit. And since this kind of a pandemic has never been seen in our lifetime, investors should not expect the smallcaps to bounce in one or two years,” says Puneet Oberoi, Founder, Excellent Investment Advisors, a wealth management from based in Delhi.

Mutual fund advisors have other concerns related to lumpsum investments at this point in the market and also choosing small cap schemes for returns. Advisors believe that this pandemic situation is not like anything we have seen, so the market’s reaction will also be unprecedented. They believe that investors should stay away from too much risk.

“I believe we have been saying this for some time now and I would reiterate it even more now that small caps are not fit for retail investors. With the current fall, it would be very difficult for the small cap segment to bounce back soon. If you have a 10-year horizon and you already have a large portfolio with large cap and good asset allocation, you can choose to invest in a small cap scheme like SBI Small Cap Fund. However, I would recommend staggering your investments,” says Babu Krishnamoorthy.

Puneet Oberoi also warns investors to stay away from lumpsum investments at this point because the markets might fall more. “Another 1,000-point fall will hit the small cap schemes the hardest. Don’t invest thinking you will double your money or earn great returns in one or two years.”


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