MF Stress Tests Show Mid-Cap, Small-Cap Schemes Improving Liquidity; Know Results of Largest Funds

The second round of stress test results demonstrated improved liquidity positions for mid-cap and small-cap mutual fund schemes according to the data from the Association of Mutual Funds in India (AMFI). Small-cap funds, on average, would now require 13.7 days to liquidate 50 per cent of their portfolios, as of March 31, 2024, down from the average of 14 days a month ago. Now the mid-cap funds would require 6.5 days on average, to liquidate 50 per cent of their portfolios, down from the category average of 6.6 days in February 2024. Concerns over potential overvaluation or froth in mid and small-cap space led to the Securities and Exchange Board of India (Sebi) mandating these stress tests to reveal the number of days it would take them to liquidate 25 per cent and 50 per cent of their portfolios if investors rush to redeem in case of any market downturn.

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Small Cap Funds Stress Tests

Among the largest 10 small-cap funds, five saw improvements in liquidity position in March. Notably, Nippon India Small Cap Fund, India's largest small-cap fund with an Asset Under Management (AUM) of Rs 45,248 crore against Rs 46,044 crore last month needs 29 days to liquidate 50 per cent of its portfolio and 15 days for 25 per cent liquidation. The liquidity position was better in the previous round with 27 and 15 per cent respectively.

HDFC Small Cap Fund, the second-largest fund in this category, with an AUM of Rs 27,573 crore, (Previous month: Rs 28,599 crore) requires 44 days to liquidate 50 per cent of its portfolio, and 22 days to liquidate 25 per cent of the portfolio.

SBI Mutual Fund, which is India's largest fund house, needs 58 days to liquidate 50 per cent of its smallcap fund portfolio, as compared to 60 days earlier. It needs 29 days to liquidate 25 per cent of its smallcap portfolio, whereas, in the previous test result, it needed 30 days. Canara Robeco Small Cap Fund and Tata Small Cap Fund showed marked improvement with the former now taking 4 days to liquidate 25 per cent of its corpus, down from its earlier requirement of 7 days and the latter also cutting down the time by three days to take the required time to 15 days.

Stress Tests Of Mid-cap Funds

Three of the largest ten mid-cap funds showed marked improvement in their liquidity positions. HDFC Mid-cap Opportunities Fund, the largest midcap fund, with an AUM of around Rs 60,200 crore, maintained the same liquidity position from the previous test, requiring 12 days to liquidate 25 per cent of its portfolio.

The second largest fund in this category Kotak Emerging Equity Fund, with Rs 39,684 core saw marked improvement in its liquidity position. The fund house now needs 15 days to liquidate 25 per cent of its corpus, down from 17 at February end. To liquidate 50 per cent it needs 30 days.

The largest fund house's mid-cap fund SBI Magnum Midcap Fund Regular saw its liquidity position going down as it needs 26 days to liquidate 50 per cent of its portfolio against 24 days earlier. To liquidate 25 per cent of the portfolio the fund house needs 13 days against 12 days mentioned in the previous round of stress tests.