Stress Test: DSP needs 16 days to exit 25% in SmallCap MF; Edelweiss 3 days

Edelweiss Mutual Fund on Thursday disclosed its first stress test result in order to comply with recent Sebi directive.

Edelweiss Mutual Fund on Thursday disclosed its first stress test result in order to comply with recent Association of Mutual Funds in India (AMFI) regulation post Sebi's directive.

The AMFI has asked all its members to disclose stress test results every 15 days, starting from March 15, 2024. Sebi had issued a 15-day disclosure directive to ascertain how soon a fund manager shall be able to liquidate holdings, if investors were in a hurry to exit positions owing to adverse market conditions.

What is Mutual Fund (MF) stress Test?

In simple terms, stress test involves calculation of the number of trading sessions, on taking into consideration the AUM (Assets Under Management) in the particular scheme, required to liquidate the said 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.

The objective of the stress test is to make the retail investor aware of the potential risks and impact of the market volatility on the liquidity of the scheme.

Back to Edelweiss, in its first disclosure the mutual fund said it would take up to 2 days to liquidate 50 per cent of the MidCap Fund portfolio, worth Rs 5,066.60 crore. 25 per cent of the fund portfolio can be liquidated in 1 trading session.

Similarly, in case of the SmallCap Fund, which AUM stands at Rs 3,189.90 crore. The fund manager will need up to 3 trading sessions to liquidate up to 50 per cent of the holdings, while 25 per cent of the AUM can be liquidated in 2 trading sessions, its stress test results showed.

The fund house added that the stress test results, reflect the strength of its processes and approach of fund management and its commitment of ensuring stability and consistency towards its investors.

DSP Mutual Fund

DSP SmallCap scheme will be able to liquidate 25 per cent of its portfolio in 16 trading days. Whereas, in case of DSM MidCap Scheme 25 per cent of its holdings can be liquidated in 9 trading sessions.

DSP MidCap fund has approximately 5.5 per cent cash holding, and 7 per cent exposure to large cap stocks.

The mutual fund house further adds that approximately 70 per cent of the active investors hold less than Rs 2 lakh in both of its schemes.

The average AUM per investor for DSP SmallCap scheme stands at Rs 3.25 lakh, and the average AUM per investor in case of MidCap scheme stands at Rs 2.75 lakh, the fund house said in its note.

WhiteOak Midcap Fund

The fund house had launched its MidCap Fund in September 2022. The present AUM for the MidCap fund stands at Rs 1,626.54 crore.

As per the Stress Test result, the fund manager will be able liquidate 25 per cent of its holdings in the fund in 0.34 days, and up to 50 per cent in 0.68 days i.e. less than one trading session in both cases.

The liquidity stress test numbers for the Midcap portfolio indicate strong liquidity without holding significant cash. A well diversified portfolio with 109 stocks as of 29 Feb, 2024 indicates the depth and coverage of the investment team to evaluate ideas across sectors. Our balanced portfolio construction will focus on ensuring stability to portfolios across market cycles, said WhiteOak in a note.

Meanwhile, Nippon India Mutual Fund, which reportedly manages the largest SmalCap fund with AUM of Rs 46,044 crore, in its first stress test report of SmallCap and MidCap scheme 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. READ MORE