Asset management companies will have to disclose the results of stress test for small and mid-cap schemes by the March 15 for the preceding month, as per an Association of Mutual Funds in India circular.
This notification is based on consultation between AMFI and the Securities and Exchange Board of India.
“AMCs shall disclose the results of stress test and liquidity, volatility, valuation and portfolio turnover in respect of mid-cap and small-cap equity schemes, as per the attached format, along with the guidance in simple language, assumptions and methodology, to enable the investor to understand the risk associated with the aforesaid two category of schemes,” stated the circular reviewed by NDTV Profit.
AMCs are required to disclose the results on their respective websites, as well as on AMFI's website on a monthly basis, within 15 days after each month, starting with disclosure for the month of February 2024 by March 15.
AMFI and SEBI have collectively decided on the format of the disclosure, which will include:
Annualised Standard Deviation in respect of the scheme portfolio and scheme benchmark index.
Portfolio beta.
Portfolio trailing 12-month PE in respect of the scheme portfolio, as well as the scheme benchmark index.
Portfolio turnover.
AMCs will be required to gauge the portfolio liquidity under stress scenario for the mid-cap and small-cap funds to determine the days required to liquidate 25% and 50% of the portfolio.
Liquidity Test
The liquidity test will be based on how many days are required to liquidate the portfolio by 25% and 50%. This will be done by determining the number of days required to liquidate 80% of the most liquid portfolio on a pro-rata basis.
This in turn, means that the 20% of the portfolio with least liquid portfolio will not be considered for this test. The 25% and 50% portfolio liquidation will be calculated based on dividing total number of days for complete liquidation by two to indicate the days required for liquidating 50% portfolio and by four to indicate days required to liquidate 25% of the portfolio.
The stress scenario will assume that AMC will be able to participate only to the extent of 10% of the stress test volume, which is pegged at three times the average daily volumes for last three months.
Under stress test, the least liquid stocks of the portfolio accounting for 20% of the portfolio weight will not be taken into consideration. This would mean balance portfolio, which will include the highly liquid large-cap stocks and the liquidation of the securities would be carried out on a pro-rata basis.
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