Nippon Mutual Fund releases small, midcap fund stress-test report

Nippon India Mutual Fund (MF) released its first stress test report of smallcap and midcap schemes on Thursday.

In the report, the fund house said that it would require up to 27 days to liquidate 50 per cent of the smallcap fund portfolio and 13 days to offload 25 per cent of the assets.

The fund house manages the largest smallcap fund with assets under management of Rs 46,044 crore.

The scheme has not been accepting lump sum inflows since July 2023.

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.

Regarding the midcap scheme, the fund house stated that 50 per cent of the assets can be sold in seven days and 25 per cent in four days. The midcap scheme, Nippon India Growth Fund, manages Rs 24,480 crore.

The top 10 investors in the smallcap and midcap schemes have an aggregate holding of 1.54 per cent and 0.91 per cent, respectively. Currently, the schemes hold 4.4 per cent and 1.36 per cent cash, according to the report.

The smallcap scheme’s investment in smallcap stocks is close to the minimum regulatory requirement of 67.5 per cent. The rest is invested in largecap and midcap stocks. The allocation towards midcaps in the midcap scheme is also at a similar level.

The Securities and Exchange Board of India has directed fund houses to conduct regular stress tests of smallcap and midcap schemes and publish the reports on their websites.

All fund houses are required to release their first reports by March 15.