SBI Smallcap Fund can meet 25% redemption in 4 days based on ‘available liquidity’ instead of AMFI formula, says CIO

SBI Mutual Funds CIO Equities, R Srinivasan

If redemption is tackled based on available liquidity, meaning using the cash first, then unwinding index futures, and then the liquid component such as some of the large-cap stocks, 25 percent of redemption in SBI Mutual Fund Small Cap Fund can be met in four days flat as against the AMFI formula-based reported number of 30 days, said SBI Mutual Funds’ CIO Equities, R Srinivasan in an exclusive interview with Moneycontrol. 50 percent of the portfolio can be redeemed in 17 days as against the reported 60 days, he added.

Also Read: Stress test: SBI MF can take up to 60 days to liquidate its small- and mid-cap portfolios

Besides, he said, the liability profile of the fund is highly distributed with the Top 10 investors owning just 0.61 percent of the fund. “This is very important because this forms the basis to assess the extent and probability of redemption we could potentially face,” Srinivasan said. The AMFI disclosure, however, does not capture the liquidity gradient between a 0 to 25 percent redemption which is the more likely redemption scenario, he said.

On the liquidity Stress Test overall, however, Srinivasan said investors need to be aware of the risks however improbable it may be. “These are, after all, known black swans. But in the end, it is about what you are looking to optimise.”

Also Read: MF Stress Test: Why it matters and should investors be worried?

SBI Small Cap Fund, along with Nippon Smallcap Fund, the largest fund in the smallcap category with assets under management of Rs 48,000 crore, has the best track record generating returns in excess of 27 percent per annum. “There is a golden mean or a desirable middle across most things: growth v/s inflation, active v/s passive, concentration v/s diversification and the like. In this case, it’s about liquidity risk v/s potential returns which the investor needs to decide on.” Said Srinivasan.

SBI Smallcap Fund has Rs 26,000 crore under management and has seen the least fall in the smallcap rout over the past few weeks.