homepersonal finance NewsMutual fund houses release small , mid cap stress test reports: Should you invest basis this?
Mutual fund houses release small-, mid-cap stress-test reports: Should you invest basis this?
By the end of Friday (March 15) evening, industry-wide disclosures are expected, offering a comprehensive view of the sector's stability.
In response to directives from the Association of Mutual Funds in India (AMFI), several fund houses have begun disclosing the outcomes of stress tests conducted on their mid-cap and small-cap funds. This move aims to provide investors with insights into the resilience and liquidity of these funds in the face of market uncertainties.
By the end of Friday (March 15) evening, industry-wide disclosures are expected, offering a comprehensive view of the sector's stability.
The stress tests focused on assessing the time required to liquidate portions of portfolios under a predefined "stress" scenario. This scenario is triggered when trading volumes surge to three times the normal level, with only 10% market participation available to a particular mutual fund scheme.
Such stringent conditions serve as a litmus test for the funds' ability to navigate through challenging market environments.
Key findings from mid-cap and small-cap stress tests
Edelweiss Mutual Fund
The fund house 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%.
Notably, both portfolios maintain high liquidity levels without holding any cash.
Quant Mutual Fund
According to the stress test results, the Quant Mid Cap Fund can liquidate 50% of its portfolio within six days, with 25% being liquidated in just three days.
Similarly, the Quant Small Cap Fund can liquidate 50% of its portfolio in 22 days, with 25% being liquidated in 11 days, signifying reasonable liquidity levels.
Axis Mutual Fund
Axis Small Cap Fund, managing an AUM of ₹19,606 crore, projects a 28-day timeframe for liquidating 50% of its portfolio.
DSP Mutual Fund
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.
Aditya Birla Sun Life Mutual Fund
Aditya Birla Sun Life Midcap Fund and Aditya Birla Sun Life Small Cap Fund have ₹10,363 crore worth of assets under management (AUM).
If needed, Aditya Birla Sun Life Mutual Fund will take four days to sell 50% of its midcap portfolio and 10 days to sell half of its smallcap portfolio.
Nippon India Mutual Fund
Nippon India Mutual Fund (MF) released its first stress test report of smallcap and midcap schemes on Thursday.
In the report, the fund house said that it would require up to 27 days to liquidate 50 per cent of the smallcap fund portfolio and 13 days to offload 25 per cent of the assets.
SBI Mutual Fund
The fund house can take up to 60 days to liquidate its small- and mid-cap portfolios.
SBI Small Cap Fund (SSCF) has broken records so far as the stress tests are concerned.
WhiteOak Capital Mutual Fund
For its midcap fund, the fund house said 50% of the portfolio will take 0.68 days to liquidate, while 25% of the portfolio will be liquidated in 0.34 days.
Quantum Mutual Fund
Quantum AMC Cap Fund has disclosed that the fund would be able to liquidate its 100% of portfolio holdings within 1day, based on the Association of Mutual Funds in India's prescribed methodology to test liquidity.
The fund has 70.31% holding in small caps, 8.25% in large caps, 2.54% in mid caps and holds 18.9% in cash and liquid securities.
A comparison of smallcap stress test outcomes of key AMCs
A comparison of midcap stress test outcomes of key AMCs
Additional scheme-wise disclosures
In addition to liquidity measures, fund houses also disclosed various other parameters, including volatility measures such as portfolio standard deviation and beta, valuation measures comparing portfolio trailing 12-month P/E ratios with benchmark trailing 12-month P/E, portfolio concentration, and turnover.
Understanding stress tests
The disclosed stress test results reveal the number of days needed to liquidate portions of portfolios under adverse scenarios.
This information helps investors gauge the liquidity and robustness of their mutual fund investments, especially in volatile market conditions.
In today's market environment, liquidity has become a central focus for investors. It refers to the ease with which assets can be bought or sold without significantly affecting their prices.
Understanding a fund's liquidity profile is crucial for investors to ensure that they can access their investments when needed, particularly during times of market stress.
Investment considerations
Kaustubh Belapurkar, director - manager of research, Morningstar India, emphasised the importance of asset allocation amidst market uncertainties.
Swarup Mohanty, the Vice Chairman and CEO of Mirae Asset Investment Managers advised investors to evaluate their portfolio allocations and acknowledged the unique liquidity management processes employed by different funds.
While their data is limited to mid-cap funds, he emphasised the significance of understanding liquidity dynamics.
Radhika Gupta, Chief Executive Officer at Edelweiss Asset Management welcomed the disclosure of stress test results and stressed on the need for investors to focus on portfolio quality beyond just returns.
She highlighted the importance of liquidity and noted positive flows despite market volatility.
A Balasubramanian, Chief Executive Officer at Aditya Birla Sun Life AMC cautioned against solely judging funds based on stress test numbers.
He advised investors to consider various parameters, including liquidity, portfolio concentration, and duration of investment, for a comprehensive evaluation of mutual funds.
(Edited by : Amrita)
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