MUTUAL FUND STRESS TEST: WHAT IS IT?

SEBI is asking mutual funds to share Stress Test reports but why? .... Written by - Prince Kumar Photo Credit: PEXELS

STRESS TEST

[{"selector":"#anim-8bf7bbc9-0214-4c21-8402-58fb6df3a5c6 [data-leaf-element=\"true\"]","keyframes":{"transform":["translate3d(-12.499999772451451%, 0, 0) translate(-25%, 0%) scale(1.5)","translate3d(0%, 0, 0) translate(0%, 0%) scale(1)"]},"delay":0,"duration":2000,"fill":"forwards"}] [{"selector":"#anim-75e8bae2-d08e-41ca-8191-feb24f31377e","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-35439890-c64d-4e41-b114-b81f46cadd88","keyframes":{"transform":["translate3d(99.48186%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-2ec86b7f-5c27-4985-9e16-1577cfefa272","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-c7469a05-c329-4d30-b2df-748840d0b694","keyframes":{"transform":["translate3d(106.37119%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-445b916a-637f-47cb-a361-f6b349349476","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-4ad41ccb-9805-492a-a3af-f48e09d53f03","keyframes":{"transform":["translate3d(383.00009%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] SEBI is asking mutual funds to share Stress Test reports to assess how small-cap funds would handle sudden redemptions. Photo Credit: Pexels

WHY THE STRESS TEST?

[{"selector":"#anim-fecc0f1d-f4e3-440e-a39d-43ac8c9a9a83 [data-leaf-element=\"true\"]","keyframes":{"transform":["translate3d(-12.499999772451451%, 0, 0) translate(-25%, 0%) scale(1.5)","translate3d(0%, 0, 0) translate(0%, 0%) scale(1)"]},"delay":0,"duration":2000,"fill":"forwards"}] [{"selector":"#anim-6582c141-3562-4c36-8fc7-841eff522c6b","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-afc673c7-8c1d-43e2-9219-8fffd8b5f7f4","keyframes":{"transform":["translate3d(99.48186%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-f8373df9-521b-44d4-91ed-b92e020eeb58","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-46f15925-1736-476d-af08-bb1069e3b553","keyframes":{"transform":["translate3d(106.37119%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-bd13cccd-8221-4488-98a5-17407e64d3eb","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-fbd2c9fa-0d8d-4e57-ac5f-87de138c7a3f","keyframes":{"transform":["translate3d(383.00009%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] Sudden investor redemptions could force funds to sell stocks, hurting remaining investors. Photo Credit: Pexels

OPEN ENDED FUNDS

[{"selector":"#anim-7495d904-9dfb-4480-83a5-19bd5267d14c","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-efc2d663-0734-45b3-916a-f266aa02892a","keyframes":{"transform":["translate3d(99.48186%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-822a61db-7108-42cd-ade0-7c11c97a49b1","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-3416d491-8598-4430-a455-6faf779da848","keyframes":{"transform":["translate3d(106.37119%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-5f81b09b-647e-47bc-901b-75c805c3ee44","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-48bf41f1-bd2f-4431-91b8-3fb2d2323903","keyframes":{"transform":["translate3d(383.00009%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] Investors expect easy access to their money in open-end funds like mutual funds. Liquidity is key. Photo Credit: Pexels

SHOULD YOU WORRY?

[{"selector":"#anim-b76a3014-610d-40de-b0aa-40f81b76026d [data-leaf-element=\"true\"]","keyframes":{"transform":["translate3d(-12.499999772451451%, 0, 0) translate(-25%, 0%) scale(1.5)","translate3d(0%, 0, 0) translate(0%, 0%) scale(1)"]},"delay":0,"duration":2000,"fill":"forwards"}] [{"selector":"#anim-cd6c41ab-f663-4d85-8c57-7c9bb10e0ca6","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-3d8895ad-5a50-4756-b53a-93fdb30e2c26","keyframes":{"transform":["translate3d(99.48186%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-47641081-8cc9-4138-8e9c-7336561a6b19","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-e122df56-ec84-453e-8853-c1364358ac32","keyframes":{"transform":["translate3d(106.37119%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-9997588e-d902-4053-b641-b126721f0f79","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-7e05e337-9bce-4491-a4df-e0992786b518","keyframes":{"transform":["translate3d(383.00009%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] Liquidity isn't everything. Great companies can be illiquid (low daily trading volume). Photo Credit: Pexels

FOCUS ON LONG-TERM RETURNS

[{"selector":"#anim-9ba91cf8-9d14-4f87-ab25-0b6e9bf8cb83 [data-leaf-element=\"true\"]","keyframes":{"transform":["translate3d(-12.499999772451451%, 0, 0) translate(-25%, 0%) scale(1.5)","translate3d(0%, 0, 0) translate(0%, 0%) scale(1)"]},"delay":0,"duration":2000,"fill":"forwards"}] [{"selector":"#anim-e90dba8f-d028-4807-8226-da3d37029586","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-331d6cae-0459-4939-b420-8af9f9c6a32a","keyframes":{"transform":["translate3d(99.48186%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-f15abc4c-5556-4dfd-925d-b4432b9471e4","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-3681b544-c2d4-443d-a3a4-e6d3d48dcb52","keyframes":{"transform":["translate3d(106.37119%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-c8149abd-26af-497a-b995-ff52d99a7aae","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-81f15877-ae1d-4396-b04b-265bbf77e45f","keyframes":{"transform":["translate3d(383.00009%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] Choose funds with a history of success, not just high liquidity. Photo Credit: Pexels

WHAT TO DO?

[{"selector":"#anim-98ef74e6-0c7e-4a06-a2aa-4155e028f376 [data-leaf-element=\"true\"]","keyframes":{"transform":["translate3d(-12.514648210040342%, 0, 0) translate(-25%, 0%) scale(1.5)","translate3d(0%, 0, 0) translate(0%, 0%) scale(1)"]},"delay":0,"duration":2000,"fill":"forwards"}] [{"selector":"#anim-f21d755b-1e8e-4321-b8b7-9d314de73822","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-742ef832-865f-40ae-bf44-d2c9550e9d68","keyframes":{"transform":["translate3d(99.48186%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-f506c583-f0d4-403a-908c-f803f8854321","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-726544f2-6cdb-4639-880d-7f0e2902246d","keyframes":{"transform":["translate3d(106.37119%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-2b2a5561-a0fd-4bdc-a9f4-1e080ac1e219","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-a9a0d099-eb9f-472a-8878-192a526328e3","keyframes":{"transform":["translate3d(383.00009%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] Don't Panic and Sell Based on the Stress Test. It's to improve transparency, not a signal to exit your investment. Photo Credit: Pexels

REGULATORY FOCUS ON FROTH

[{"selector":"#anim-f8974e17-58e9-4a4a-beb0-30ae4f383662 [data-leaf-element=\"true\"]","keyframes":{"transform":["translate3d(-12.514648210040342%, 0, 0) translate(-25%, 0%) scale(1.5)","translate3d(0%, 0, 0) translate(0%, 0%) scale(1)"]},"delay":0,"duration":2000,"fill":"forwards"}] [{"selector":"#anim-933f45e6-7a9f-4058-8b70-9ac6ae9ef5aa","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-24d4b3c7-c425-428b-9436-87fe18bc0740","keyframes":{"transform":["translate3d(99.48186%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-d5f54fbb-00ba-4b5d-8974-5153e05db169","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-33d749ee-bc1a-441b-845f-154c2e3660a0","keyframes":{"transform":["translate3d(106.37119%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-70af87fd-3b2d-4169-ac06-8016e1b10b49","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-fdad1d82-188a-4888-98ad-bc1049a33385","keyframes":{"transform":["translate3d(383.00009%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] Increased scrutiny may lead to a shift away from overvalued small-cap stocks. Photo Credit: Unsplash

MAKE INFORMED DECISION

[{"selector":"#anim-57f6e8a7-ea1f-4261-9a95-79c9c1e93048 [data-leaf-element=\"true\"]","keyframes":{"transform":["translate3d(-12.499999772451451%, 0, 0) translate(-25%, 0%) scale(1.5)","translate3d(0%, 0, 0) translate(0%, 0%) scale(1)"]},"delay":0,"duration":2000,"fill":"forwards"}] [{"selector":"#anim-9270b853-7eb8-45b6-9402-2feae0f2802a","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-ad72499f-44a9-4eba-81c5-b612c640675e","keyframes":{"transform":["translate3d(99.48186%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-75285607-421e-4620-9338-4c97091d987c","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-f2873f84-dc09-49b0-9d71-a2fe43d30a75","keyframes":{"transform":["translate3d(106.37119%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-aa12ba24-e8ad-4649-b76a-8568260bf054","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-0d0a01ac-8a1c-4f6f-a61c-48bcd89740db","keyframes":{"transform":["translate3d(383.00009%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] Consult a SEBI-registered investment advisor for making the right decision. Photo Credit: Pexels

MUTUAL FUND STRESS TEST: WHAT IS IT?

STRESS TEST

WHY THE STRESS TEST?

OPEN ENDED FUNDS

SHOULD YOU WORRY?

FOCUS ON LONG-TERM RETURNS

WHAT TO DO?

REGULATORY FOCUS ON FROTH

MAKE INFORMED DECISION

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