SEBI Proposes To Extend Disclosure Of Stress Test Results To All Mutual Fund Schemes

The Securities and Exchange Board of India has proposed that the stress test results of all mutual fund schemes be disclosed. The proposal was made in a consultation paper that was released on Thursday.

As things stand, asset management companies are mandated to carry out stress test on all schemes, except close ended and interval schemes.

A stress test calculates the number of days required to liquidate a portfolio. This calculation is based on recent trading volumes and helps asses the liquidity of the portfolio. Even though all the schemes are tested, only the results of the small and mid cap schemes are disclosed on the AMC's website and Association of Mutual Funds in India.

It is proposed that the results of all mutual fund schemes that are tested, except close ended and interval schemes, be made public. The paper proposed that this mandate will help investors make better informed choices in all categories.

The terms in Clause 2.3.2.1 (iii) of Annexure 1 of the MF Master Circular mandates that all fund houses are required to stress test all their schemes on a monthly basis.

The publishing of stress test results is currently limited to small cap and mid cap funds, while the paper calls for all the scheme results to be published.

"This would also align with the recommendations of Financial Stability Board in the report dated December 20, 2023 on ‘Revised Policy Recommendations to Address Structural Vulnerabilities from Liquidity Mismatch in Open-Ended Funds'," stated the proposal.

The consultation paper addresses eight areas, with respect to the interest of employees of AMCs and the unit holder. The consultation paper is broadly positioned toward the ease of compliance of mandates by AMC employees.

There are certain relaxations that have been opened for views regarding the requirements from AMC employees. There are proposals that have called for reduction of mandatory minimum investments to be made by certain employees. The reduction of frequency of disclosure of salaries of employees have also been proposed along with a few other changes.