Mumbai, March 25 -- Retail investors chasing outsized returns in small-cap stocks were facing a liquidity squeeze even before the US-Israel-Iran war-led energy shock roiled markets, as mutual funds faced longer timelines to liquidate holdings.

Data from the Association of Mutual Funds of India (Amfi) showed that, as of 1 February, the time required to liquidate 50% of portfolios in leading small-cap schemes has risen sharply over the past year, reflecting thinning volumes and weaker market depth.

The largest fund in the category, Nippon India Small Cap Fund, required 44 days-up 13 days from a year ago-to sell half its portfolio if faced with redemption pressure. The Quant Small Cap Fund saw the steepest increase, with liquidation time r...