The second batch of mutual fund stress test results showed a little improvement in the liquidity positions of small-cap funds, indicating a slight decrease in the time required to liquidate half of the portfolios of such schemes (read about the first mutual fund stress tests here).
According to the latest data, as of March 31, it would take an average of 13.74 days, a slight improvement from 14.03 days observed in the previous month, to liquidate half of the portfolios of small-cap funds.
Every month by the 15th, asset management companies (AMCs) must provide key information regarding ease of buying and selling, potential price fluctuations, current value, and investment turnover frequency for both mid and small-cap equity funds.
Although the general liquidity status of small-cap schemes has stayed fairly consistent compared to earlier, there have been significant alterations observed at the individual scheme level.
Tata Small Cap Fund Improves
One notable improvement is in Tata Mutual Fund’s Small Cap Fund. Despite having a relatively smaller total amount of around Rs 6,300 crore, it has made significant progress. In the previous stress-test result, this fund reported longer periods required to sell off investments. However, in the latest findings for March, the Tata Small Cap Fund has shown one of the most significant improvements, now taking 29 days to sell off half of its portfolio.
Similarly, the Canara Robeco Small Cap Fund has also shown improvement, reducing the time needed to sell off half of its portfolio from 14 days to eight days. These positive changes highlight the resilience and flexibility of small-cap funds in dealing with challenges in the market.
For more information on the risk parameters and regulatory requirements for mutual funds, readers can visit the website of Association of Mutual Funds in India (AMFI).
Large Small Cap Funds Lag
However, larger small-cap funds might encounter prolonged periods for selling off investments during market downturns, as shown by SBI Small Cap Fund, which required 58 days to sell off 50 percent of its portfolio. Conversely, Nippon India Small Cap Fund and HDFC Small Cap Fund saw a slight increase in the time needed for portfolio liquidation.
Also Read: SBI Small Cap Fund Stress Test Result – March 2024
Moreover, the stress-test results also disclosed details about other factors such as concentration risk and the allocation of investments across different market sizes. SEBI has mandated that asset management companies (AMCs) disclose the total assets managed by the top ten investors in a scheme to highlight the risk associated with concentrated ownership. Small-cap funds should also carefully manage their investments across mid-cap and large-cap firms to effectively mitigate risk.
The stress-test results give useful information on the durability and flexibility of small and mid-cap funds in the midst of market swings. While challenges exist, the general outlook is good, with improvement noted across various parameters.
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Disclaimer: The above content is for informational purposes only. Please consult a SEBI-registered investment advisor before investing in mutual funds.
