SEBI Mutual Fund Stress Test: Quant Small-Cap Mutual Fund Requires 22 Days to Liquidate 50% Portfolio

Several mutual fund houses have recently disclosed the results of stress tests conducted on their small-cap and mid-cap funds. These stress tests were based on data from the previous month, and the findings were made public before March 15. The move was prompted by concerns raised by the Securities and Exchange Board of India (SEBI) regarding excessive speculation in these funds. Despite large fund houses limiting inflows due to valuation concerns, investor interest has remained strong.

The stress test results revealed crucial insights.

• Beginning with Nippon India Small Cap Fund, which oversees Rs 46,000 crore in assets, the stress test indicates that it would require approximately 27 days to liquidate half of its portfolio.
• Moving on to Edelweiss Mutual Fund, the stress test outcomes vary across its Mid-Cap and Small-Cap Funds. The Mid-Cap Fund demonstrates relatively higher liquidity, with an estimated 2 days needed to liquidate 50% of its portfolio. Conversely, the Small-Cap Fund exhibits slightly lower liquidity, requiring 3 days for 50% and 2 days for 25% portfolio liquidation.
• Quant Mutual Fund emerges as another key player in the stress test results, being the first to publish its findings. In the case of its Mid-Cap Fund, the analysis suggests it would take approximately 6 days for 50% and 3 days for 25% portfolio liquidation. Meanwhile, the Small Cap Fund appears to face greater liquidity challenges, with 22 days needed for 50% and 11 days for 25% portfolio liquidation.
• Axis Small Cap Fund, managing an AUM of Rs 19,606 crore, is highlighted for its stress test, indicating that it would take approximately 28 days to liquidate 50% of its portfolio.
• Lastly, DSP Small-Cap Fund, with an AUM of Rs 13,703 crore as of February end, is evaluated, revealing that it would require approximately 32 days to sell off 50% of its portfolio.

Here is a complete table showing the results of stress tests for AMC and mutual fund schemes, along with their AUM:

These stress test results provide investors with insights into the liquidity of their mutual fund assets. Additionally, they serve as a reminder for fund managers to stay vigilant about liquidity management and be prepared for sudden redemption requests.

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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.