SEBI has asked the country’s asset managers to provide investors with more information about risk connected to their younger and mid-cap fundAccording to a fund manager and two people with knowledge of the matter.
Small and medium-sized funds have seen high inflows, raising concerns among officials about how they will survive in the event of a sharp selloff in the market. The Securities and Exchange Board of India (SEBI) is also reviewing the stress tests conducted by such funds. , sources have said earlier.
Funds are being sought for exposure How long it might take to accommodate large redemptions, what impact large outflows might have on the value of the portfolio and how much cash and liquid assets the fund has to meet the outflows, the people said.
“Investment committees were always aware of liquidity challenges but investors were not. Once this information is available to them, they can compare each fund,” said Harsha Upadhyay, chief investment officer, Kotak Mutual Fund.
The Association of Mutual Funds in India (AMFI), which is working with Sebi, is proposing a standardized format for exposure disclosures, he said, adding that the disclosures will be made on a regular basis.
SEBI and AMFI did not immediately respond to requests for comment.
Heavy inflows have lifted the Nifty Small Cap 250 index 71% and the Nifty Mid Cap 100 index 64% in the last 52 weeks. This is much higher than the 28% rise of the benchmark Nifty.
One of the sources, who was not authorized to speak to the media and declined to be identified, said funds would begin making these disclosures in April.
According to public documents, mutual funds hold between 1% to 5% of their assets in cash as a prudent measure to meet their outflows. However, there is no minimum regulatory requirement.
To be classified as a small-cap fund, funds must invest at least 65% of their assets in small-cap stocks and the remaining 35% can be either in cash or invested in large-cap stocks. Is. This rule is the same for mid-cap funds also.
“In some cases, the fund does not have enough cash. While in others, the fund is entirely invested in small/midcap stocks and no discretionary investment is made in large-cap stocks,” said the second source. “
In India, small-cap stocks are defined as stocks with a market cap of less than Rs 50 billion, while mid-cap stocks are defined as those with a market cap between Rs 50 billion and Rs 200 billion.
Kotak, which manages 144 billion rupees ($1.7 billion) of small-cap funds, has imposed a temporary restriction on inflows, saying the “chasing of momentum” is “overwhelming the necessary caution”.
Last year, Tata Mutual Fund and Nippon India Mutual Fund stopped accepting lump sum investments in their small-cap fund,
Small and medium-sized funds have seen high inflows, raising concerns among officials about how they will survive in the event of a sharp selloff in the market. The Securities and Exchange Board of India (SEBI) is also reviewing the stress tests conducted by such funds. , sources have said earlier.
Funds are being sought for exposure How long it might take to accommodate large redemptions, what impact large outflows might have on the value of the portfolio and how much cash and liquid assets the fund has to meet the outflows, the people said.
“Investment committees were always aware of liquidity challenges but investors were not. Once this information is available to them, they can compare each fund,” said Harsha Upadhyay, chief investment officer, Kotak Mutual Fund.
The Association of Mutual Funds in India (AMFI), which is working with Sebi, is proposing a standardized format for exposure disclosures, he said, adding that the disclosures will be made on a regular basis.
SEBI and AMFI did not immediately respond to requests for comment.
Heavy inflows have lifted the Nifty Small Cap 250 index 71% and the Nifty Mid Cap 100 index 64% in the last 52 weeks. This is much higher than the 28% rise of the benchmark Nifty.
One of the sources, who was not authorized to speak to the media and declined to be identified, said funds would begin making these disclosures in April.
According to public documents, mutual funds hold between 1% to 5% of their assets in cash as a prudent measure to meet their outflows. However, there is no minimum regulatory requirement.
To be classified as a small-cap fund, funds must invest at least 65% of their assets in small-cap stocks and the remaining 35% can be either in cash or invested in large-cap stocks. Is. This rule is the same for mid-cap funds also.
“In some cases, the fund does not have enough cash. While in others, the fund is entirely invested in small/midcap stocks and no discretionary investment is made in large-cap stocks,” said the second source. “
In India, small-cap stocks are defined as stocks with a market cap of less than Rs 50 billion, while mid-cap stocks are defined as those with a market cap between Rs 50 billion and Rs 200 billion.
Kotak, which manages 144 billion rupees ($1.7 billion) of small-cap funds, has imposed a temporary restriction on inflows, saying the “chasing of momentum” is “overwhelming the necessary caution”.
Last year, Tata Mutual Fund and Nippon India Mutual Fund stopped accepting lump sum investments in their small-cap fund,
