Key Points
Acting on a nudge by markets regulator Sebi, mutual funds have begun to release reports of stress tests conducted on their small and midcap schemes..
The report card is an evaluation of liquidity and other risk ratio parameters in case the equity markets fall and investors rush to redeem their investments...
According to Sebi, in the context of froth building up in mid and smallcap segments and continuous inflows in small and midcap mutual fund schemes, mutual fund houses should frame a policy which contains appropriate and proactive measures to protect investors...
Stress test is being done by mutual fund houses to evaluate the liquidity of their mid and smallcap portfolios by calculating the time required to liquidate 50% and 25% of portfolios on a pro-rata basis after removing the bottom 20% of portfolios based on scrip liquidity...
Last month, the smallcap boom caught Sebis attention when it told mutual funds to put a framework in place to protect retail investors in case of a market crash...
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