Stress test 2.0 results show improved liquidity positions: How quickly can small cap funds offload portfolios?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The second batch of mutual fund stress-test results unveil a slight improvement in the overall liquidity positions of small-cap funds. According to a Moneycontrol report, it would take an average of 13.74 days as of March end, a slight improvement from 14.03 days in the previous month, to liquidate half of the portfolios of such schemes.

Here are the key findings on small-cap funds from mutual funds’ stress tests:

Quant Small Cap Fund

Quant Small Cap Fund, an offering from Quant Mutual Fund with an asset under management (AUM) of ₹17,349 crore, has shown improvements in its liquidity positions.

Ranked as the fifth largest fund in its category, Quant Small Cap Fund now projects a 20-day duration to liquidate 50% of its portfolio, down from 22 days in the initial stress test conducted in March.

Additionally, the recent stress test indicates a timeframe of 10 days for liquidating 25% of its portfolio, compared to 11 days previously.

Mahindra Manulife Small Cap Fund

Mahindra Manulife Small Cap Fund, managing an AUM of ₹3,557.06 crore, would take four days to liquidate half of its portfolio, with a further reduction to two days for 25% liquidation.

UTI Small Cap Fund

UTI Small Cap Fund, with an AUM of ₹3,501.59 crore, would require five days for 50% liquidation and three days for 25% liquidation.

Tata Small Cap Fund

Tata Small Cap Fund would now take 29 days to liquidate 50% of its portfolio.

It would take 15 days to liquidate 25% of its portfolio against 18 days earlier.

Canara Robeco Small Cap Fund

Canara Robeco Small Cap Fund improved the 50% liquidation period for half of its portfolio to eight days from 14 earlier.

And a 25% liquidation would take four days now against seven earlier.

SBI Small Cap Fund

SBI Small Cap Fund, with an AUM of ₹25,435 crore, saw improvements in its liquidity positions, with the number of days required to liquidate 50% of the portfolio decreasing from 60 to 58 days.

Addressing market concerns

The stress testing initiative, mandated by the Securities and Exchange Board of India (SEBI), emphasises on concerns over market froth, particularly within the small-cap segments.

By disclosing stress test results and related metrics, AMCs provide investors with transparency and insights into the resilience of their portfolios amidst market fluctuations.

However, it’s crucial to recognise that liquidity concerns, while important, should not be the sole determinant of investment decisions.

As highlighted by experts, investors should refrain from solely relying on stress test results. Instead, they should consider a holistic array of factors when assessing mutual funds.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow