Small-cap funds see better score on liquidity stress-test. What does it mean?
Volume spike
Liquidity is a problem even when money comes in. In a thinly traded stock, a large buy order quickly consumes the shares on offer at the current price, so the fund ends up paying more for each subsequent lot. This is impact cost in reverse: the fund’s own buying pushes the price up. When heavy inflows need to be deployed quickly, they can artificially push up valuations. This is why several fund houses have, at different times, stopped or capped lump-sum investments in their small-cap funds, allowing only systematic investment plans (SIPs), often within limits.
