Mutual funds stress test: Small cap funds' liquidity improves, albeit slightly

The disclosure of stress test and liquidity analysis in respect of small cap funds revealed that the time period required to liquidate portfolio has reduced, albeit marginally.

Axis small cap fund will now need 27 days to liquidate 50 percent of their portfolio and 13 days for 25 percent of portfolio against 28 days and 14 days, respectively, the table below shows.

Tata Small Cap fund will now need 29 days and 15 days, respectively against 35 and 18 days earlier in the month of February.

Meanwhile, Nippon India Small Cap Fund will need 29 days and 15 days, respectively, to liquidate 50 percent and 25 percent of its portfolio against 27 days and 13 days earlier.

Conversely, Kotak Small Cap Fund will require 34 days instead of 33 earlier to liquidate half of its portfolio.

It is worth recalling that mutual fund houses are meant to reveal the level of liquidity enjoyed by their small and mid-cap schemes each month by carrying out a ‘stress test’.

Stress Test for March

Stress Test for February

These directions were issued by the Association of Mutual Funds in India (AMFI) after witnessing froth in the mid and small cap stocks. Retail investors are meant to be cautioned through these disclosures before they invest in small and mid-cap mutual funds.

This holds a lot of significance when a few fund houses, after witnessing the massive inflow of funds in their schemes, restricted the lumpsum investment in their schemes.