Stress disclosures on small, mid-Cap funds by AMCs from March: Officials

In a bid to maintain stability, instil investors' confidence and enhance transparency, market regulator SEBI and AMFI, a body representing the mutual fund industry, have directed fund houses to provide additional disclosures for small and mid-cap funds from this month, officials said.

The additional disclosure parameters for mutual fund managers include valuation, volatility, investor concentration and stress tests, they said.

"We have instructed AMFI to direct AMCs to disclose certain additional data points relating to valuation, volatility, investor concentration, and the percentage holding in small and mid-cap stocks, along with disclosures on stress testing results," SEBI wholetime member Amarjeet Singh said at an event organised by Indian Chamber of Commerce.

The stress test results are expected to reveal the time it may take for Asset Management Companies (AMCs) to liquidate securities equivalent to 25 per cent and 50 per cent of the Assets Under Management (AUM) of the schemes on a pro-rata basis. A format has been developed in consultation with AMFI, Singh said.

"The risk management framework is communicated to the Asset Management Companies (AMCs) for disclosure to investors through various channels such as the risk-o-meter, fact sheets, and additional disclosures, particularly for mid-cap and small-cap funds," AMFI Chief Executive Venkat Nageshwar Chalasani said.

These disclosures cover aspects like liquidity, valuation and concentration, providing investors with crucial information to make informed decisions. These detailed disclosures will be available on the websites of AMC and the regulator. Chalasani termed such measures as an ongoing process to instil investor's confidence.

The interaction between investors and fund managers is part of the continuous risk management and disclosure process, which is already being carried out through channels like the risk-o-meter and fact sheets. "From March, they will provide additional information on small and mid-cap funds," he said.

The arrangement of additional disclosures on small and mid-cap funds comes at a time when there have been sharp inflows in these funds as the market hits fresh highs.

The market regulator had reviewed data with respect to stress testing of some of the schemes, and based on their outcome, a need was felt that investors should be aware of certain additional risks involved in investing in such schemes, the officials said.

The net assets under management in small-cap and mid-cap funds were Rs 2,49,079 crore and Rs 2,94,490 crore, respectively, in February 2024 as compared to Rs 1,31,586 crore and Rs 1,83,246 crore in the year-ago month.