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Stress test results of June 2024 indicate Quant Small Cap Fund’s increased liquidation periods
6 min read | Updated on July 02, 2024, 11:34 IST
SUMMARY
Quant Small Cap Fund's latest stress test results for May 2024 reveal increased liquidation periods, with 50% and 25% portfolio liquidations now taking 30 and 15 days, respectively. This highlights rising liquidity risks for the ₹22,967 crore fund, emphasising the importance of considering various investment factors beyond liquidity alone.
Stress test results of June 2024 indicate Quant Small Cap Fund’s increased liquidation periods
Quant Mutual Fund has announced the results for June 2024 in the recent round of stress tests for mutual funds by the Securities Exchange Board of India (SEBI). This shows that it takes longer than before to sell off parts of the Quant Small Cap Fund’s holdings implying more prospects for high liquidity risk.
Overview of Quant Small Cap Fund
As of June 2024, the Quant Small Cap Fund ranks as the fourth largest fund in its category and has assets under management (AUM) totalling ₹22,967 crore. This fund mainly focuses on investing in smaller companies that tend to have lower liquidity compared to their bigger peers.
Stress Test Results: A Comparison
The stress tests answers how long it would take to liquidate large portions of the fund’s portfolio using the month’s holdings under stressed market conditions. The results for June 2024 show longer liquidation periods than in prior months:
- 50% Portfolio Liquidation: It would take 30 days to liquidate 50% of the portfolio, an increase from 28 days in May 2024.
- 25% Portfolio Liquidation: It would take 15 days to liquidate 25% of the portfolio, an increase from 14 days in May 2024.
Quant Small Cap Fund Stress Test & Liquidity Analysis
| As of (Portfolio date) | AUM (Rs. Cr) | Stress Test | |
|---|---|---|---|
| 50% portfolio | 25% portfolio | ||
| June-24 | 22,967 | 30 | 15 |
| May-24 | 21,243 | 28 | 14 |
| Apr-24 | 20,194 | 22 | 11 |
| Mar-24 | 17,383 | 20 | 10 |
| Feb-24 | 17,233 | 22 | 11 |
Quant Mutual Fund Other Schemes Stress test Results
| Schemes Name | No. of days (Scheme) June 2024 | |
|---|---|---|
| 50% | 25% | |
| quant Absolute Fund | 1 | 1 |
| quant Active Fund | 7 | 3 |
| quant BFSI Fund | 1 | 1 |
| quant Business Cycle Fund | 1 | 1 |
| quant Commodities Fund | 1 | 1 |
| quant Consumption Fund | 3 | 1 |
| quant Dynamic Asset Allocation Fund | 1 | 1 |
| quant ELSS Tax Saver Fund | 5 | 2 |
| quant ESG Equity Fund | 1 | 1 |
| quant Flexi Cap Fund | 3 | 2 |
| quant Focused Fund | 1 | 1 |
| quant Healthcare Fund | 5 | 2 |
| quant Infrastructure Fund | 3 | 2 |
| quant Large And Mid Cap Fund | 2 | 1 |
| quant Large Cap Fund | 1 | 1 |
| quant Manufacturing Fund | 1 | 1 |
| quant Mid Cap Fund | 10 | 5 |
| quant Momentum Fund | 2 | 1 |
| quant Multi Asset Fund | 1 | 1 |
| quant PSU Fund | 1 | 1 |
| quant Quantamental Fund | 1 | 1 |
| quant Small Cap Fund | 30 | 15 |
| quant Teck Fund | 1 | 1 |
| quant Value Fund | 1 | 1 |
Understanding the Implications
An increase in the number of days it would take to liquidate the portfolio represents a potential increase in liquidity risk. Liquidity risk is the risk that a fund may not readily convert assets to cash without significantly affecting the asset’s price. A few factors are at play:
What is Sebi’s Stress Test Mandate?
SEBI’s mandate is for AMCs to disclose stress testing results and liquidity metrics for mid-cap and small-cap equity fund schemes. The data seeks to provide some transparency into how strong such mutual funds would still be in falling markets and hence this is useful info on which investors may want to act upon or not while having access to other forms of data too.
Recent Trends in Mutual Fund Flows
Studies using data from the Association of Mutual Funds in India (AMFI) suggest that there is a changing trend in mutual fund inflows. The small-cap category saw an outflow of ₹94 crore in March 2024, the first such outflow in FY24. This trend normalized in April 2024 with an inflow of ₹2208.70 crore into small-cap funds. In latest available data provided by AMFI the small cap funds saw inflow of ₹2724.67, getting back on the track of growth story.
What Should Investors Do?
While stress test results provide valuable insights into the liquidity dynamics of mutual funds, they should not be the sole basis for investment decisions. Investors should adopt a balanced approach, considering a range of factors:
- Liquidity Concerns: Recognize the importance of liquidity but also consider other factors such as portfolio concentration and investment duration.
- Holistic Evaluation: Assess mutual funds based on performance, standard deviation, tax implications, and overall investment strategy.
Conclusion
In the most recent stress test, we saw that Quant Small Cap Fund has increased liquidation periods, which may lead them into liquidity problems at any one time. Investors need to keep an eye on these numbers and at the same time look at other factors before making their investment choices. This test indicates that it is important for companies to be clear regarding what they are doing and be careful with risks when there are changes in markets.
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