Mutual Fund Liquidity Stress Test | The Real Test to Check How Illiquid is Your Small Cap Fund

Recently, SEBI has implemented measures prioritising investor welfare, notably focusing on transparency and protection in the mutual fund sector.

One such measure is its directive to mutual funds via AMFI, to conduct forthnightly Stress Test of their mid and small cap funds.

Concerned about a potential bubble in mid and small-cap segments, SEBI fears the impact on fund liquidity during market downturns akin to the subprime crisis, Lehman Brothers collapse in 2008, and the COVID-19 crash of 2020.

While mutual fund houses have started disclosing their Stress Test results, is the methodology used for conducting the Stress Test fair and transparent? Watch this video to know why it is an incomplete test.