Why is it in the news?

• Mutual fund houses are releasing Sebi stress test reports indicating the number of days required to liquidate 50% and 25% of their mid-and-small-cap schemes portfolio.

More about the news

• Stress tests evaluate the time needed for investors to recover their investment amidst a downturn in the equity market and increased redemptions.
• Mutual fund companies conduct stress tests to assess liquidity in small and midcap portfolios, specifically focusing on the speed at which fund managers can sell stocks.
• The importance of stress tests lies in providing investors with insights into fund performance during adverse market conditions, enabling them to make more informed investment decisions.
• Understanding potential risks and vulnerabilities in a fund’s portfolio allows investors to manage their expectations regarding potential losses during market downturns.