Mutual fund houses reveal a number of metrics for their small and mid cap schemes in this stress test and liquidity analysis. They are supposed to reveal the time period which they would take to liquidate a sizable portion of the scheme.
They reveal an array of metrics such as concentration, stress test, volatility and valuation.
As the table above shows, Tata small cap fund will take 40 days to liquidate 50 percent of its portfolio and 20 days for 25 percent of portfolio on a pro rata basis.
Meanwhile, while computing the time taken to liquidate a portfolio on a pro-rata basis, the 20 percent of least liquid securities of the portfolio are overlooked.
The riskiest small cap fund, based on the above table, is quant Small Cap Fund which will take 70 days to liquidate 50 percent of portfolio and 35 days to liquidate 25 percent of portfolio.
HDFC Small Cap Fund will take 47 days to liquidate 50 percent of portfolio whereas 23 days to liquidate 25 percent of portfolio. At the same time, DSP small cap fund will take 46 days to liquidate 50 percent of portfolio and Axis Small Cap Fund will take 26 days to liquidate 50 percent of portfolio.
What is a stress test?
As per Sebi guidelines, mutual funds are supposed to examine the liquidity of portfolios under stress scenarios for their mid-cap and small-cap funds.
The stress test shows the number of days it would take to liquidate 25 per cent and 50 per cent of the portfolio in case of a stress event.
The fund houses are also supposed to reveal the proportion of assets these schemes have allocated to ‘cash’ to fulfil redemption requests. The April data shows that Axis Small Cap Fund has allocated 12.30 percent of assets to cash and ICICI Prudential Smallcap Fund has 13.31 percent of its assets held in cash.
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