Mutual fund houses declare stress test results on small, midcap folios amid SEBI concerns, check key details

The capital market regulator Securities and Exchange Board of India (SEBI) regarding froth or "irrational exuberance" in schemes in small and midcap segments. The capital market watchdog red-flagged froth in mid and small-cap schemes amid relentless inflows, despite large fund houses restricting investments due to a lack of opportunities at the right valuation.

Following this, the Association of Mutual Funds in India (AMFI) had asked the Asset Management Companies (AMCs) to conduct stress tests on their schemes based on last month's data and disclose the findings before March 15.

Several Indian mutual fund houses have now released stress test results on their small and midcap portfolios.

What is a mutual fund stress test?

A stress test determines the duration within which an investor can recover their invested capital in the event of a downturn in the equity market and a subsequent surge in investor redemptions.

Mutual fund companies conduct these stress tests to assess the liquidity of their small and midcap portfolios. This evaluation involves calculating the time needed to liquidate 50% and 25% of the portfolios proportionately, after filtering out the least liquid 20% of assets based on scrip liquidity.

Asset management companies (AMCs) like Nippon India Mutual, Edelweiss Mutual Fund, Quant Mutual Fund, Axis Mutual Fund, Aditya Birla Mutual Fund and DSP have either published their stress test results on their websites or reportedly sent them to investors on Thursday, March 14.

The findings from the stress tests of these AMCs show disparities in the time taken to liquidate their portfolios.

Nippon India Mutual Fund

Nippon India Small Cap Fund said that it would require 27 days to sell off half of its portfolio and 13 days to liquidate 25% of portfolio. Meanwhile, number of days to liquidate 50% and 25% of its midcap portfolio to take seven and four days.

Edelweiss Mutual Fund

Edelweiss Mutual Fund said that it would take 2 days to liquidate 50% of its midcap fund portfolio and one day to liquidate 25%. In its smallcap fund, it said three days would be required to liquidate 50% of its portfolio and 2 days to liquidate 25%.

Quant Mutual Fund

Quant Mutual Fund, which was the first to publish its stress test result, said it would take 6 days to liquidate 50% of its portfolio for mid-cap fund and 22 days for the smallcap fund. The fund house said it would take 3 days to liquidate 25% portfolio for the midcap fund and 11 days for the small-cap fund.

Axis Mutual Fund

Axis Small Cap Fund, which has AUM of ₹19,606 crore, said it would need 28 days to liquidate 50% of its portfolio.

Aditya Birla Mutual Fund

Aditya Birla Mutual Fund said it would need 5 days to liquidate 25% of its smallcap portfolio and 2 days to liquidate midcap schemes.

DSP Mutual Fund

DSP Small-Cap Fund said that it would take 32 days to liquidate 50% of its portfolio. The AMC said that it can liquidate 25% of its Small Cap Fund in 16 days. The company has AUM of ₹13,703 crore under small-cap portfolio.

Shares of asset management companies such as HDFC AMC, Nippon AMC, UTI AMC, and ABSL AMC traded mixed on Friday following the release of stress test results by several mutual fund players concerning their mid and small-cap portfolios.