Mumbai: Mutual funds along with market regulator Sebi has decided to disclose more information related to small- and mid- cap equity schemes’ portfolio risk to investors.

Industry body Association of Mutual Funds in India(AMFI) along with Sebi has enhanced the risk metrics and asked fund houses to disclose the result of stress test and liquidity, volatility, valuation and portfolio turnover in respect of small- and mid-cap equity schemes.

These disclosures would have to made on the asset management companies website, as well as on AMFI’s website on a monthly basis within 15 days after each month, starting with disclosure for the month of February, 2024 by March 15.

“It is done given the rise in equity market is quiet substantial, one must know the risk associated with this segment of the market which lacks liquidity due to not so high trading volumes,” said an AMFI official.

“These measures will provide sufficient information so that investments are made for long-term rather than coming for short-term after knowing these risk parameters associated with individual fund house portfolios,” official said.

To gauge portfolio liquidity under a stress scenario for small- and mid-cap funds, certain assumptions and methodology have been proposed to ascertain number of days required to liquidate 50% and 25% of the portfolio.Stress scenario would be defined as one wherein only 10% of market participation is available to any single scheme of a mutual fund.It is assumed that average traded volume of the securities on stock exchanges, observed over a period of three months will be 3 times the volumes of normal times, said the AMFI letter to members.

For this analysis, top least liquid stocks of the portfolio would not be taken into consideration and the number of days taken to liquidate 50% and 25% of the portfolio would be ascertained for the balance portfolio.

Liquidation of the securities in the portfolio would be assumed to be carried out on a pro-rata basis, it said in the letter. The number of days required to liquidate 50% & 25% of the portfolio would have to be calculated based on the volume available for liquidating the portfolio. That would be arrived at by multiplying market participation under stress scenario and the volume under stress scenario for the securities in the portfolio.

Besides, the number of days required to liquidate each stock in the portfolio would be computed considering the volume available for liquidating the portfolio.

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