Mar 27, 2017 2 min read

Why Mutual Fund Stops Fresh Inflow of Cash?

By reading this blog, you will come to know the reasons why fund stops taking new investments, and what investors should do in such a case.
Are you afraid of losing the value of your investments? Do you have a fear in mind that your fund may stop taking further inflows? Well, there is nothing to worry about, it is done for your benefit. Read this blog in full to know why is it important to stop taking further cash flows in the current fund.

Recently, DSP BlackRock Micro Cap Fund has stopped taking inflows for further investments. This announcement made miserable conditions that many investors of the scheme decided to switch off or redeem their funds. The reason being is that they thought the scheme is closing down and will not be managed anymore and they will lose their invested capital and earnings in all. Later on, the things got sorted out when a further announcement from DSP BlackRock Mutual Fund was made that the scheme shall be continuously managed and the current SIPs shall not get affected at all.

This was the one case; you too might have got affected by the same if you have an investment in this plan, but what if the same happens in some other scheme in the future. Do you need to panic, or stay calm knowing your money is safe? Get to know about this here.

When do mutual funds say no to fresh cash inflows?

A fund typically chooses to stop fresh investments when it is perceived that there is a dearth of investment opportunities. Hence, the fund simply sits idle until the market opens up with some better opportunities. Though maintaining a higher cash position helps the fund in outperforming when the market slides, there is some pre-specified limit for the scheme above which managing the cash inflows becomes complicated and thus detrimental to the interests of the investors. There might be a case when the fund is not in a position to wait for better opportunities and simply avoid investing altogether. Henceforth, the fund manager decides not to take in any further cash for management.

Another reason which leads to stopping the cash inflows in the running scheme is when the corpus of the fund grows exceptionally and become unwieldy for the fund managers. This happens in the case when the broader market is on an upswing or when the fund is doing exceedingly perfect. With this, the size of the fund is increased tremendously, and it becomes difficult for the fund managers to manage them further.

What should investors do?

Patience is the key to successful investing. You must never forget that the fund managers are managing your money on your behalf as they have the capacity and professional skills to do so. They will never let your interests get adversely affected. Fund managers stop taking inflows because the liquidity of the scheme gets affected which may result in heavy losses for the investors. Just like over capitalisation is detrimental for the companies, increasing the AUM in the scheme leads to reducing the potential of the mutual fund investment plan.

So you don’t need to take any quick decisions at such moments, rather should take a while, think about what is happening, study the strategy and techniques of the fund manager to step up accordingly.

At MySIPonline, our entire team of fund advisors keeps evaluating the market trends in order to provide the best advice to the investors. If you too need any assistance in buying the best fund for your portfolio, then you must avail our free financial advisory services.