MF stress test: India’s biggest small-cap fund can sell off its 50% portfolio in 27 days

Many fund houses declared the results of the stress test of their small-cap and mid-cap funds on March 14 evening.

Nippon India Small Cap Fund, India’s biggest small-cap scheme with Rs 46,000 crore worth of assets under management (AUM), would require 27 days to sell off half of its portfolio. The stress test result stays largely in line with other major small-cap funds.

Many fund houses declared the results of the stress test of their small-cap and mid-cap funds on March 14 evening.

Among the top 10 small-cap funds, Axis Small Cap Fund, with AUM of Rs 19,606 crore, disclosed that it would take 28 days to liquidate 50 percent of its portfolio.

DSP Small-Cap Fund, which has an AUM of Rs 13,703 crore as of February end, disclosed that it would take 32 days to sell off 50 percent of its portfolio. Liquidation of the 50 percent of Quant Mutual Fund’s small-cap scheme would take 22 days.

Also read | Mutual Fund stress test: Edelweiss Small Cap Fund to take 3 days for 50% liquidation

The stress test results of Nippon India Small Cap Fund assume significance because of its size and the number of stocks it holds. The scheme holds more than 200 stocks in its portfolio.

Notably, Nippon India Small Cap Fund had stopped accepting fresh lump sum investments in July. A liquidation of 25 percent of its portfolio can be done in 13 days, it said.

When it comes to the mid-cap scheme, Nippon India Growth Fund would take seven days to offload 50 percent of its portfolio in the event of a sharp selloff in the market, while 25 percent portfolio liquidation can be done in just four days.

Nippon India Growth Fund is among the top 10 mid-cap schemes with assets of Rs 24,481 crore as of February end.

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After the Securities and Exchange Board of India (Sebi) raised concerns about froth building up in mid-cap and small-cap segments through its February 27-28 communications, the Association of Mutual Funds in India (AMFI) asked asset management companies to conduct stress tests and publish the results on its own websites as well as that of AMFI’s, once every 15 days starting March 15.

The objective of the stress test exercise of AMFI is to make the average mutual fund investor aware of the risks and impact of market volatility on the liquidity of one’s equity portfolio, based on which one can take appropriate decisions to rebalance and redirect one’s liquidity and savings, as one deems fit.

As per disclosures by Nippon India Mutual Fund, top 10 investors hold just 0.91 percent in the small-cap fund, showing less concentration risk. The figure for Nippon India Growth Fund stood at 1.54 percent as of February end.

Also read | Mutual Fund Stress Test: Quant MF says 'all is well', no signs of euphoria in Indian equities

In terms of portfolio diversification, 13.46 percent, 14.65 percent and 67.49 percent allocation of Nippon India Small Cap was in large-cap, mid-cap and small-cap stocks, respectively. While, cash holding of the scheme was at 4.40 percent.

In Nippon India Growth Fund, cash holding was 1.36 percent, while 18.40 percent, 66.71 percent and 13.53 percent allocation was in large-cap, mid-cap and small-cap stocks, respectively.