SEBI Mutual Fund Stress Testing: What
Praveen Dubey (SEBI Registered RA)
SP RESEARCHVIA PVT. LTD. (INH000015808)
Addressing Liquidity Risks in Small and Mid-cap Schemes
Following a massive surge in inflows into small and mid-cap mutual funds, SEBI mandated periodic stress testing. This requirement ensures that fund houses can meet sudden redemption panics without triggering market sell-offs.
What is a mutual fund stress test under SEBI rules?
A mutual fund stress test calculates the number of days a fund house would take to liquidate 25% or 50% of its small/mid-cap portfolio during a market panic. It evaluates the liquidity of the underlying shares held by the scheme.
Key Valuation Metrics
Investors should look for funds with lower liquidation periods (fewer days to exit positions) and balanced cash positions, which offer buffer safety during corrections.
Written by Praveen Dubey
Chief Research Analyst | SEBI Reg: INH000015808
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