New Delhi
SEBI on Friday asked the mutual fund industry to conduct regular stress tests to better manage liquidity risks, particularly in small and midcap equity schemes. SEBI's whole-time member, Ananth Narayan Gopalakrishnan, emphasized that stress testing should cover not just individual schemes but the entire mutual fund ecosystem. He encouraged the industry and AMFI to lead in performing objective and comprehensive stress tests.
Gopalakrishnan also pointed out the need to improve risk communication for different mutual fund schemes. He noted that the current risk measurement system is simple but does not capture all the nuances of risk among various schemes. He suggested using portfolio volatility and liquidity from stress tests to provide clearer risk assessments.
SEBI's call for better stress testing comes as mutual fund holdings by Domestic Institutional Investors (DIIs) and individuals have increased from 54.3 percent to 60.6 percent of free float in mid and small-cap companies between March 2020 and March 2024. Some fund houses have restricted investments in small-cap schemes due to this shift.
Gopalakrishnan also advocated for improvements in operational efficiency and the security settlement process to ensure funds reach investors promptly. He highlighted the growth in mutual fund investors and mentioned upcoming initiatives like low-ticket SIPs and simplified regulations for passively managed funds to encourage innovation and competition.