MF Stress Tests: The mid- and small-cap indices have jumped sharply in a short period, outperforming the benchmark peers, even as their fundamentals do not justify the valuations they are currently commanding.
Mutual Funds Stress Tests: Capital markets regulator Securities and Exchange Board of India (Sebi) has been vocal and constantly warning market participants of the froth or “irrational exuberance” in the broader market.
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Last month, it asked the mutual fund regulatory body, the Association of Mutual Funds in India (AMFI), to ask fund managers to moderate flows into mid- and small-cap schemes. This was done as the mid-and small-cap indices have jumped sharply in a short period, outperforming the benchmark peers, even as their fundamentals do not justify the valuations they are currently commanding.
In response to the Sebi communication, AMFI also asked its members to conduct the stress tests of mid- and small-cap schemes and disclose the results by the 15th of every month. The stress test shows how prepared the mid-and small-cap funds are for redemption and how risky they are in the case of heavy redemptions.
This stress test will assess the processing capability of these fund houses in the case of redemptions. Further, it will also show in how many days the small and midcap fund houses will liquidate 25 per cent and 50 per cent of their portfolios.
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Hence, in response, many fund houses have released their stress test results for the last month, i.e., February. Remember, the sooner the fund houses can liquidate, the better it is.
Take a look
| Time taken to liquidate | |||
| Mid-cap fund | 25% Portfolio | 50% Portfolio | AUM (cr) |
| Nippon India MF | 13 Days | 27 Days | 1,150 |
| Axis Midcap Fund | 6 Days | 12 Days | 25,264 |
| Aditya Birla Sun Life | 2 Days | 4 Days | 4,981 |
| Quant Mid Cap Fund | 3 Days | 6 Days | 5,443 |
| Edelweiss Midcap | 1 Day | 2 Day | 50,67 |
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| Time taken to liquidate | |||
| SmallCap Fund | 25% Portfolio | 50% Portfolio | AUM (Cr) |
| DSP small cap Fund | 16 Days | 32 Days | 16,312 |
| Axis Small Cap Fund | 14 Days | 28 Days | 248 |
| Aditya Birla Sun Life | 5 Days | 10 Days | 5,382 |
| Quant Small Cap Fund | 11 Days | 22 Days | 17,332 |
| Edelweiss SmallCap | 2 Day | 3 Day | 34 |
What MF investors need to know
These tests will disclose data such as portfolio valuations and portfolio volatility, and it is important to keep an eye on these updates. Experts advise having a balanced portfolio. After assessing the data, investors are advised to park money in large, mid-, and small-cap funds based on their risk-taking capability.
In an interaction with Zee Business’ Managing Editor Anil Singhvi, Nilesh Shah, Group President and MD at Kotak Mahindra AMC, said the stress tests will help assess the true picture of the market. Shah added that the stress tests are entirely based on cash volumes.
