Retail investors raise their exposure to small and mid cap mutual funds, stress test reveals THIS
While small- and mid-cap mutual funds continue to remain risky, retail investors have been increasing their exposure to these funds. In July, investors invested ₹6,484 crore in small cap mutual funds and ₹5,182 crore in mid cap funds. The corresponding data for June stood at ₹4,024 crore and ₹3,754 crore, respectively.
Since April, inflows into small- and mid-cap mutual funds have increased by 62 percent and 56 percent, respectively, over three months, according to the latest AMFI data.
However, small and mid cap funds by definition are quite risky. All mutual fund houses are supposed to reveal stress test every month, which indicates their vulnerability. The stress test reveals how long it will take to liquidate a significant chunk of their portfolio should most investors opt for redemption.
As the table above shows, investors have been raising their exposure to small and mid cap mutual funds. Let us find out what the stress test indicates.
Stress test
Mid cap funds: The stress test of mid cap mutual funds reveals that it will take anywhere upto 37 days to redeem 50 percent of the portfolio and upto 19 days to redeem 25 percent of the portfolio. As one would expect, it varies from scheme to scheme. The chart below gives the description scheme-wise.
Small cap funds: The latest stress test of small cap funds shows that highly vulnerable small cap schemes could take as long as 54 days to liquidate 50 percent of its portfolio.
However, it varies from fund to fund. As the table above shows, Quant Small Cap would take 58 days to liquidate 50 percent of portfolio and 29 days to liquidate 25 percent of portfolio.
SBI Small Cap Fund would take 55 days to liquidate 50 percent of portfolio and 28 days to liquidate 25 percent of portfolio. Other schemes would take as long as 36 (Kotak small cap), 31 days (Nippon Small Cap) and 35 days (Tata Small Cap).
Stress test results show the number of days that will be required to liquidate 50 percent and 25 percent of the portfolio, respectively, on a pro-rata basis, under stress conditions. While calculating this, the 20 percent least liquid securities are ignored.
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