Nippon Mutual Fund disclosed that it would take 27 days to liquidate 50% of the portfolio of its small-cap fund and 13 days to liquidate 25%.
Nippon India Mutual Fund (MF), which manages the largest smallcap fund with assets under management of Rs 46,044 crore, released its first stress test report of smallcap and midcap schemes.
The detail comes after SEBI instructed funds to disclose these results by the end of the day on Friday, prompted by concerns over the build-up of froth in small- and mid-cap funds. SEBI specifically wants funds to disclose the time it would take to liquidate 50% and 25% of their small and mid-cap portfolios.
If an equity fund takes longer than the usual two to three days to return investors’ money, it could suggest stress in the fund’s portfolio.
Nippon Mutual Fund disclosed that it would take 27 days to liquidate 50% of the portfolio of its small-cap fund and 13 days to liquidate 25%. The mutual fund in a statement said that it would take seven days and four days, respectively, to liquidate 50% and 25% of its midcap scheme portfolio.
“Holdings of large, mid, and small cap stocks and cash are 18.4%, 66.7%, 13.5% and 1.36%, respectively, in the Nippon Growth Fund and 13.46%, 14.6%, 67.5% and 4.4%, respectively, in the Nippon Small Cap Fund,” as per the disclosed results
The scheme has not been accepting lump sum inflows since July 2023.
The format, designed by the Association of Mutual Funds in India, also sets conditions such as choosing 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.
Among others, Aditya Birla Mutual Fund said it would require five days to liquidate a quarter of its small-cap funds and two days for its mid-cap portfolio.
For Edelweiss Mutual Fund, the time taken for similar liquidation was two days for small-cap funds and one day for mid-cap funds.
Quant Mutual Fund said it will take 11 days to liquidate a quarter of its small-cap portfolio and three days for its mid-cap portfolio. India has 27 small-cap funds and 24 mid-cap funds, managing 2.4 trillion rupees ($28.93 billion) and 2.1 trillion rupees respectively.
Funds must allocate a minimum of 65% of their assets to small-caps to be classified as small-cap funds, with the remaining 35% potentially in cash or large-cap stocks. The same rule applies to mid-cap funds.
