Small-cap funds face liquidity stress despite inflows

Small-cap mutual funds in India are facing liquidity stress even though they are receiving a lot of money from investors.

This means it would take these funds a long time to sell half of their investments if many investors suddenly wanted their money back.

For example, some funds like Tata Small-cap and Quant Small-cap would take nearly three months to sell half of their investments, which is much longer than at the start of the year.

This is happening because a lot of new money is going into a small number of easily sold stocks, rather than being spread out.

Experts say this could make it harder for these funds to manage investments effectively, but they don't think there's an immediate risk.

The market regulator, Sebi, has asked these funds to regularly check their ability to handle such situations to ensure they have enough liquidity.