MF Stress Test Results: Can liquidate 100% holdings in a day, says Quantum AMC Cap Fund

Quantum AMC Cap Fund said on Friday that it would be able to liquidate 100 per cent of its portfolio holdings within one day. The fund said it had 70.31 per cent holding in smallcaps, 8.25 per cent in largecaps, 2.54 per cent in midcaps, and 18.9 per cent in cash and liquid securities. The fund house was sharing the outcome of stress tests based on mutual fund industry body AMFI’s prescribed methodology to test liquidity.

Quantum said it had been following a robust investment framework with guardrails around liquidity and market cap ownership that defines the capacity to which the fund can scale without compromising the portfolio characteristics and liquidity traits. 

“We have a liquidity filter of Rs 2 crore of minimum average liquidity for the stocks over last 12 months,” it said in a press release. 

“For Quantum Mutual Fund, it is business as usual. The fund house believes that while the overall valuations in the smallcap space look high, there are pockets of opportunities which appear reasonable on a PEG (price to earnings growth) basis,” said Chirag Mehta, CIO, Quantum AMC on Small Cap Fund Scenario. 

“It is with this conviction that Quantum Mutual Fund undertakes extensive fundamental analysis to arrive at the forward valuations of stocks and buys those stocks where it sees reasonable opportunity to deliver potential upside. The fund house also continues to track Portfolio characteristics to ensure the portfolio continues to remain reasonably priced,” Mehta added. 

Several other fund houses also released the results of their respective stress tests. 

Earlier, regulator Sebi cautioned market participants against a build-up of froth in the smallcap and midcap segments. After Sebi directed fund houses to put in place an investor protection framework for those investing in smallcap and midcap schemes, AMFI asked its members to conduct the stress tests of their schemes falling under the categories and disclose the results by the 15th of every month. 

ALSO READ: Everything to know about mutual fund's stress tests

Why the stress tests?

The tests are aimed at finding out where a delay in exiting holdings of such stocks could defer the return of funds to investors, who expect to receive their money back within two to three days, as per current industry practice. The tests show how prepared the midcap and smallcap funds are for redemption and how risky they are in the case of heavy redemptions.

Sebi ordered to check if they could manage huge redemptions in the event of a market downturn. It wanted to ensure that during phases of market downturns and the resultant surge in outflows, the first set of investors shouldn’t be at an advantage to leaving those staying invested with low liquidity.  

Funds must allocate a minimum of 65 per of their assets to smallcaps to be classified as smallcap funds, with the remaining 35 per cent potentially in cash or large-cap stocks. The same rule applies to midcap funds.

With inputs from agencies