AMFI issues circular on ‘stress test’ of mutual fund schemes; all you need to know

As per a recent directive from the Association of Mutual Funds in India (AMFI) in collaboration with the Securities and Exchange Board of India (SEBI), asset management companies (AMCs) are now required to disclose the results of stress test for small and mid-cap schemes by March 15 each year, based on the preceding month's data. 

This new regulation aims to enhance transparency and provide investors with more insight into the risk profiles of such schemes.

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Monthly disclosure requirement

AMCs must publish the stress test results on their own websites and on AMFI's website on a monthly basis, within 15 days after the end of each month. This reporting will begin with the disclosure for the month of February 2024, due by March 15. 

The format of the disclosure, agreed upon by both AMFI and SEBI, will encompass several key metrics. Firstly, it will include the annualized standard deviation for both the scheme portfolio and the scheme benchmark index. 

Additionally, the disclosure will feature the portfolio's trailing 12-month PE for both the scheme portfolio and the scheme benchmark index. Another important metric to be included is the portfolio beta, which provides insight into the scheme's risk relative to the overall market. 

Lastly, the disclosure will incorporate details on the portfolio turnover, shedding light on the frequency with which assets within the scheme are bought and sold.

Also Read: Around two-third of small-caps have become multi-baggers in last 4 years: DSP Report

Portfolio liquidity assessment 

In addition to the above metrics, AMCs are also required to assess the portfolio liquidity under stress scenarios for mid-cap and small-cap funds. This assessment will determine the number of days needed to liquidate 25% and 50% of the portfolio in case of a stress event.