In the recent past, investment in mid-cap and small-cap among investors has become quite popular with its ability to give its fast return. However, these funds are often associated with volatility and fluctuations with these funds compared to large-cap funds. To increase transparency with investment in these funds and strengthen investors, the Security and Exchange Board of India (SEBI) has made it necessary to know about the (AMCS) stress test and liquidity test for Asset Management Company (AMCS), analyzed about mid-cap and smal cap funds.
Actually what are these announcements and why is it so important for us? Let us take the right steps with Nivesh Ka Sahi Kadam and learn about our investment journey.
What are stress tests in mutual funds?
Stress test with mutual funds is important. It evaluates a portfolio during the complex conditions of the market-filled market, how quickly how quickly the portfolio can be liquidate (liquidity) during the challenging market conditions, so that investors’ money can be protected. Mid-cap and small-cap funds typically invest in small companies with less capital in terms of market. The issue of liquidity with these funds can be a matter of concern due to low trading capacity and the possibility of rapid fluctuations in prices.
The stress test assesss how much time will be needed to sell a portion of these bonds without being affected by market prices.
Under the SEBI rules, all AMCs have to explain how long it takes to make 25% and 50% of the portfolio of the fund. The lowest 20% assets in it are not included in liquidity (due to maximum liquidity). This gives investors complete information about the liquidity risk related to a fund. Also, due to this announcement, when there is a need for security on a large scale, it presents the correct picture of the time.
What is liquidity analysis?
Liquidity analyzes present the results of the stress test better. In this, it is tested that the funds of the funds can be converted into cash in how easy a way. They classify the security of a portfolio based on its liquidity capacity. It is generally evaluated on the basis of trading volume (purchase-sale) and market fluctuations. For mid-cap and small-cap funds, liquidity analysis is important. It is due to this that buyers are not always ready for these stocks especially in the market decline. Through this analysis, investors can understand that suddenly the market fluctuations and investors have to protect their money, then how flexible this funds are (buying or selling from Asani). At the same time, it also makes suggestions that investors can withdraw their money instead of selling funds at low prices.
Why is this announcement necessary?
The announcement of stress test and liquidity analysis is important and useful information for investors. This creates transparency and investors can take the right decision if they have complete information. Here we know why these are important:
● To increase transparency: These announcements are like a window to understand the liquidity profile of the fund. This helps investors to accurately assess the risks related to mid-cap and small-cap investment.
● Awareness for possible risks: Mid-cap and small-cap funds are generally attempted more risk due to investment in small companies. The results of the stress test accurately assess how difficult it will be in the difficult situation. With this, investors can take the right decision of investment by understanding the affected risk.
● Decision after complete information: By understanding the liquidity of a fund well, investors can assess their economic goals and the ability to take risks and decide to invest in a particular mid-cap or small-cap fund.
● Security at the level of regulation: Under the SEBI Rules and Order, the AMCs have to periodically assess and declare the risks associated with liquidity. This increases the accountability of companies and also protects the interests of investors.
How can investors use these announcements
Under Nivesh Ka Sahi Kadam, we encourage investors to see stress test and liquidity analysis as guide or information tools for themselves, not consider it a hindrance. Reviewing these announcements, one should also assess different parts of the portfolio, your investment fields, risk-taking ability and economic goals.
Funds with less low liquidation period and high liquidity are considered to be able to protect investment even amid market fluctuations. However, investment decisions should not be taken only on these basis. The final decision should be taken keeping in mind the field of investment, risk -taking ability and economic goals.
Taking opinion from an economic expert in this regard can help in understanding these announcements correctly in the context of your portfolio. Apart from this, keep an eye on the stress test results mentioned by AMC every month. This leads to accurate information about the liquidity status of the funds.
Mid-cap and small cap mutual funds are stress tesuts and liquidity analysis to understand the risks associated with the mutual funds. By understanding these announcements well, investors can choose the right option for themselves with complete information. You can proceed with the right investment towards meeting your economic goals.
Under Mutual Funds Sahi Hai, we believe that the correct information for economic security is a strong basis. With Nivesh Ka Sahi Kadam, proceed with full confidence on your investment trip with a more transparent atmosphere and intelligent decisions.
For more information: https://www.news18features.com/niveshkasahikadam
Disclaimer: Mutual fund investment is subject to market risk. Read all the documents related to the scheme carefully before taking the investment decision. The performance of the past is not a guarantee of the same results in future.