Mutual Funds Stress Tests: Shares of asset management companies (AMC), HDFC AMC, Nippon AMC, UTI AMC, and ABSL AMC traded mixed in the morning deals on Friday, March 15. The stocks were under pressure after fund houses, on the instructions of the mutual fund regulatory body, the Association of Mutual Funds in India, started releasing their stress tests for mid- and small-cap schemes. 

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As of 9:46 a.m., shares of UTI Asset Management Company traded over 2 per cent lower, Aditya Birla Sun Life AMC and HDFC Asset Management Company slipped over 0.60 per cent, whereas Nippon Life India Asset Management slipped over half a per cent but soon recovered losses and was up 0.20 per cent. 

A few days back, Sebi flagged froth in the mid- and small-cap segments, cautioning investors and asking AMFI to take immediate steps to protect investors, at large, from the potential damage from the "bubble."

In response to this, AMFI asked funds to moderate inflows into small and midcap funds and asked them to disclose to investors the results of internal stress tests and details such as the time needed to liquidate 25 per cent or 50 per cent of the portfolio. These results are mandated to be disclosed by the 15th of each month.

The results declared by houses are mixed; it is good for some of the funds and bad for others. Here is the look. 

Edelweiss Midcap MF: The fund house said that it will take two days to liquidate 50 per cent of the portfolio and one day to liquidate 25 per cent of its portfolio. 

Edelweiss Smallcap MF: The fund house declared that it would take three days to liquidate 50 per cent of the portfolio and two days to liquidate 25 per cent. 

Meanwhile, the results disclosed by the DSP Small Cap Fund are disappointing. The fund house said that it would take 32 days to liquidate 50 per cent of its portfolio, which is the highest among funds that have disclosed their stress tests till now. Additionally, to liquidate 25 per cent of its portfolio, it will take 16 days. 

What is a stress test? 

The stress test calculates the number of days required to liquidate assets based on their recent trading volumes.

The format, designed by the Association of Mutual Funds in India, also sets other specific conditions, such as adopting a pro-rata basis of liquidation after removing the 20 per cent least liquid holdings.

For the test, MFs have to assume a 10 per cent participation volume and three times the volume. READ MORE

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With inputs from Zee Business Research