The latest stress test of mutual funds shows that mid-cap funds will take 32 to 34 days to liquidate 50 percent of their portfolio. At the same time, for small mutual funds, it will take 54 to 56 days, according to the latest data shared on the AMFI (Association of Mutual Funds in India) website.
For example, the DSP Midcap Fund needs twelve days to liquidate 50 percent of its portfolio in the stress scenario, while this period was 17 days in February. To liquidate the same portion of the portfolio, HDFC Mid-Cap Opportunities Fund takes 34 days, while it took 23 days in February.
It is worth recalling that all mutual funds are expected to disclose the stress test results for their small and mid-cap schemes. This started after Sebi directed all fund houses to declare stress test results by the 15th of every month, based on the previous month’s data.
It was introduced in the wake of the high valuation of small and mid-cap stocks. The first disclosure by investment funds took place on March 15, the last on December 15.
As we can see in the table above, Quant Mid Cap needs twenty days to liquidate 50 percent of its portfolio, while Axis MF only needs nine days to do so. Interestingly, the situation has not improved drastically compared to February, as the table below shows.
Small cap funds
To liquidate 50 percent of its small cap portfolio, Axis Small Cap will need 22 days, compared to 28 days in February, the table below shows.
The DSP Small Cap Fund will take 47 days to liquidate 50 percent of its portfolio, compared to just 32 days in February.
The corresponding figures for HDFC Small Cap Fund are 54 and 42 days respectively.
The table also shows that the SBI mutual fund takes as much as 56 days to liquidate 50 percent of the portfolio, compared to 60 days in February.
What is a stress test?
According to this disclosure, mutual funds are intended to examine portfolio liquidity under stress scenarios for their mid-cap and small-cap funds.
The stress test shows, among other things, how many days it would take to liquidate 25 percent and 50 percent of the portfolio in the event of a stress event.
The fund houses are also expected to disclose the proportion of assets these schemes have allocated as ‘cash’ to meet redemption requests.
They should also reveal some volatility data, such as the annualized standard deviation of the benchmark (%) and the portfolio beta.
