Mutual Fund’s Stress – Find Out How Long Your Investments Will Last!

Mutual Fund’s Stress: SEBI wanted funds to disclose the time it would take to liquidate 50% and 25% of their smallcap and midcap portfolios.

Nippon India Mutual Fund’s Stress Test Report

Nippon India Mutual Fund (MF) recently released its inaugural stress test report concerning smallcap and midcap schemes. This move came in response to SEBI’s directive following concerns regarding the potential buildup of speculative activity in small- and mid-cap funds. Nippon MF, managing the largest smallcap fund with assets totaling ₹46,044 crore, complied with SEBI’s instruction, unveiling the results of its stress test.

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Identifying Stress in Portfolios

What indicates stress? If a fund takes longer than the typical two to three days to return investors’ money, it suggests stress in the portfolio.

Insights from Nippon Fund’s Results

According to the disclosure by Nippon Mutual Fund, it would take 27 days to liquidate 50% of the portfolio of its small-cap fund, and 13 days to liquidate 25%. In its midcap scheme portfolio, it stated that it would take seven days and four days, respectively, to liquidate 50% and 25% of the fund.

The fund provided a breakdown of its holdings, indicating that in the Nippon Growth Fund, the allocation is as follows: 18.4% large cap, 66.7% mid cap, 13.5% small cap, and 1.36% cash. Similarly, in the Nippon Small Cap Fund, the allocation stands at 13.46% large cap, 14.6% mid cap, 67.5% small cap, and 4.4% cash.

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Insights from Other Funds

Edelweiss Mutual Fund revealed that the time taken for similar liquidation was two days for small-cap funds and one day for mid-cap funds. On the other hand, Quant Mutual Fund stated that it would take 11 days to liquidate a quarter of its small-cap portfolio and three days for its mid-cap portfolio.