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Mutual Fund Stress Test

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.

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