E-Paper
Sebi stress test: What is it, what are the results and impact on markets
Sebi stress test: Starting today (March 15) this is to be done once every 15 days and will be an indication of how healthy the funds are.
Sebi stress test: The Securities and Exchange Board of India (Sebi) raised concerns about froth building in mid-cap and small-cap segments which prompted the Association of Mutual Funds in India (AMFI) last month to tell mutual funds to conduct stress tests and publish the result on its own websites as well that of AMFI’s. Starting today (March 15) this is to be done once every 15 days and will be an indication of how healthy the funds are.
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What does the Sebi stress test check?
The test checks two things: selling speed and price impact. Selling speed checks how quickly can a fund manager sell small company stocks if many investors redeem their investments and the price impact checks whether selling these stocks would bring down their price significantly or not.
What is the aim of Sebi stress tests?
Sebi aims to protect investors through the stress test and ensure that small cap funds can handle unexpected redemptions. Through the stress tests, Sebi is also making sure that funds are prepared in a situation of liquidity and have a plan for selling assets if required.
Why small caps are in focus though?
Sebi is checking is fund managers can sell enough stocks fast enough to meet redemption requests and smallcap stocks can be harder to sell quickly than large companies.
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What are the results?
Each fund is disclosing how long it would take to sell 25% and 50% of their holdings which will help investors know how easily they can get their money back from the fund.
Quant Mutual Fund: It said that Quant midcap fund could return your money in six days if you needed to sell out half (50%) of the fund and would take 3 days to get 25% back while Quant small cap fund might take 22 days to return your money if you want to sell out half and 11 days for 25%.
Edelweiss MF: Edelweiss MF said that their small-cap fund could be liquidated fast: three days to sell out 50 per cent and two days to sell 25 per cent.
Nippon MF: Nippon India Mutual Fund (MF) said that it would require up to 27 days to liquidate 50 per cent of the SmallCap fund portfolio and 13 days for 25 per cent of the assets.
