This fund house was criticised for 2 years for not starting a small-cap fund — it feels vindicated now

For two years, Mirae Asset Investment Managers faced a relentless barrage of inquiries and criticisms for not venturing into the small-cap fund territory. However, Swarup Mohanty, the Vice Chairman and CEO of Mirae Asset Investment Managers, now feels vindicated in their decision.

Mohanty defended Mirae Asset's position, highlighting that their data is primarily confined to mid-cap investments.

"My first disclaimer is at Mirae Asset Investment Managers, we don't have a small-cap fund," Mohanty told CNBC-TV18.

"In the past two years, we have been trying to justify why we don't have a small-cap fund in practically every discussion we've been going to, that's how large the return chasing has been in the market," he said.

He stressed that Mirae's focus on mid-cap investments wasn't arbitrary but based on their understanding of market dynamics and investor preferences.

"Our data is mostly restricted to the mid-cap where 50 is getting done in 10 days, and then 25% in four days," Mohanty told CNBC-TV18.

His comments come as fund houses have started disclosing the outcomes of stress tests conducted on their small-cap and mid-cap funds.

This move comes in response to directives from the Association of Mutual Funds in India (AMFI), which mandated fund houses to conduct stress tests on their mid- and small-cap schemes using last month's data and disclose the results before March 15.

Nippon India Small Cap Fund, with assets under management (AUM) totalling ₹46,000 crore, has revealed that it would require 27 days to divest half of its portfolio.

Edelweiss Mutual Fund has detailed its liquidity scenario, stating that it could liquidate 50% of its mid-cap fund portfolio within two days and 25% within a single day.

For its small-cap fund, Edelweiss anticipates three days to liquidate 50% of its holdings and two days for 25%.

Quant Mutual Fund has also shared its stress test results, indicating that it would take six days to liquidate 50% of its Quant Mid Cap Fund's portfolio and 22 days for the Quant Small Cap Fund.

The liquidation timeline for 25% of the portfolio stands at three days for the Quant Mid Cap Fund and 11 days for the Quant Small Cap Fund.

Axis Small Cap Fund, managing an AUM of ₹19,606 crore, projects a 28-day timeframe for liquidating 50% of its portfolio.

DSP Small-Cap Fund, with an AUM of ₹13,703 crore as of February's end, has disclosed that it would necessitate 32 days to divest 50% of its portfolio.

Speaking further, Mohanty stressed the importance of recognising that investors are generally aware of the liquidity disparities between large-cap, mid-cap, and small-cap investments.

He emphasised that each fund house has its unique approach to liquidity management, which predates regulatory mandates.

"Just putting out that number of days is not the right way of ascertaining every fund or putting it on one small podium," Mohanty said.

"You have to bring in the skill of the backend of the fund management, the skill of the dealers, the skill of the entire fund management unit in managing that liquidity, which will differ from fund house to fund house," he said.

What Mohanty means by this statement is that simply disclosing the number of days required to liquidate a portion of a fund's portfolio is insufficient for truly understanding its liquidity dynamics.

He said that such information alone cannot accurately gauge the effectiveness of a fund's management or compare different funds on an equal footing.

Mohanty suggested that to fully comprehend a fund's liquidity management, one must consider various factors beyond just the numerical figure. This includes the expertise and strategies employed by the fund's management team, the proficiency of the dealers executing transactions, and the overall capability of the fund management unit.