Instead of just four categories, SEBI can widen the spectrum by introducing new slabs. At the same time, SEBI should also ensure free hand to fund managers in constructing their portfolios
The decision of Motilal Oswal Asset Management Company to discontinue subscription for its Microcap 250 index with immediate effect (January 8) has created a lot of noise both in social media (X post) and among the investment fraternity.
“This is to notify that subscription in units of Motilal Oswal Nifty Microcap 250 Index Fund has been discontinued with immediate effect ie cut-off time of January 8, 2026. This is issued in consultation with SEBI as microcap is not defined as category based on market capitalisation,” Motilal Oswal AMC said in a press release.
The discontinuation shall be implemented in the manner specified below: Fresh and additional purchases through lump-sum mode and switch-in transactions into the scheme from any other schemes of Motilal Oswal Mutual Fund shall be discontinued; fresh registrations under Systematic Investment Plan (SIP) and/or Systematic Transfer Plan (STP) shall be discontinued; existing SIPs/STPs, wherever applicable, shall be paused with effect from the effective date; and any subscription amount received including SIP, STP in etc, after the applicable cut-off time on the effective date shall not be processed and shall be refunded to the respective investors, without any interest, in accordance with applicable regulations, the fund house has said, thus virtually shutting down the door from all form investments for its micro-cap fund.
Motilal Oswal Nifty Microcap 250 Index Fund currently manages about ₹2,600-crore worth assets. The investment objective of the scheme is to provide returns that, before expenses, correspond to the total returns of the securities as represented by Nifty Microcap 250 Total Return Index, subject to tracking error.
Unwarranted concern
Though the fund house did not give reasons for the sudden decision, it was widely believed that the main reason behind such a move could be due to a perceived liquidity concern.
However, in a clarification to one of the blog posts, Pratik Oswal, Head – ETFs and Index Funds at Motilal Oswal, said the issue is “purely around compliance with existing classification norms, and nothing else.”
“It’s worth noting that today’s micro-caps are significantly larger and more liquid than small-caps were five-seven years ago. From a portfolio-management perspective, the fund can comfortably be more than 2x its current size without any liquidity concerns,” he said in the X-post, adding “and importantly, existing investors are unaffected, and we’re actively working on a resolution.”
According to bl.portfolio estimates, the number of days required to liquidate 50 per cent of the Motilal Oswal Microcap 250 Index Fund portfolio as of December 31, 2025, is just two.
Given the growth and expansion of Indian markets, categorisation of market-cap needs a rethink. As per current m-cap classification, first 100 companies fall in large-cap, from 101 to 250 under mid-cap and stocks beyond 250 come under small-cap. Micro-cap stocks, though there is no clear definition, generally are the stocks in the bottom rung of small-cap stocks.
The m-cap of small-cap, which used to be ₹2,000 crore five years ago, has now jumped to ₹12,000 crore. The regulator, AMFI and fund houses are currently working on revamping categorisation norms that is likely to be out soon.
So, investors need not panic.
Instead of just four categories, SEBI can widen the spectrum by introducing new slabs such as mini mid-cap, mini-small-cap, micro-cap and even tiny-caps. If SEBI sees potential liquidity concern, it can allow the schemes to be launched with a lock-in mandate of three years. At the same time, SEBI should also ensure a free hand to fund managers in constructing their portfolios.
It may be recalled that SEBI Chairperson Tuhin Kanta Pandey, while cautioning AMCs investing in micro-cap companies recently, said, “Maintaining proper documentation for such investment decisions ensures transparency and sound due diligence.” Fund houses should take the advice seriously.
Published on January 16, 2026
