Stress test: Franklin India, Canara Robeco post good numbers for large smallcap funds

The objective of the stress test exercise of AMFI is to make mutual fund investor aware of the risks.

Canara Robeco and Franklin India mutual funds have shared satisfactory numbers for liquidation of their small-cap funds as they disclosed the outcome of the SEBI-mandated stress test.

Canara Robeco Small Cap Fund, the 10th biggest scheme in the category with assets under management (AUM) of Rs 9,595 crore, said 50 percent of its portfolio can be liquidated within 13.5 days. It would take almost seven days — 6.75 days — to liquidate 25 percent of its holding, Canara Robeco Mutual Fund said on March 15, as it announced the mutual fund stress test results.

Also read | The great small cap fall and the way forward

Franklin India Mutual Fund would take 12 days to liquidate 50 percent of its small-cap fund and six days to while divest 25 percent of its holdings.

Franklin India Smaller Companies Fund is the ninth biggest scheme in the category with an AUM of Rs 11,823 crore as of February end.

Among the top 10 smallcap funds that have announced the results so far, Canara Robeco Mutual Fund and Franklin India Mutual Fund are the quickest in terms of liquidation of smallcap funds.

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Only HDFC and HSBC mutual funds were left among the top 10 smallcap funds to disclose the results of the stress test at the close of the market on March 15.

HDFC Small Cap Fund is the second-biggest scheme in the category, with an AUM of Rs 28,599 crore. HSBC Small Cap Fund is the seventh biggest with an AUM of Rs 13,747 crore.

Also read | Mutual Fund stress test: Edelweiss Small Cap Fund to take 3 days for 50% liquidation

Compared to Canara Robeco Small Cap Fund and Franklin India Smaller Companies Fund, SBI Small Cap Fund (AUM of Rs 25,534 crore) would take up to 60 days to liquidate 50 percent of its portfolio. This is the highest number of days that any scheme has reported, so far. In fact, it will take 30 days to liquidate 25 percent of its portfolio, also the highest number reported so far in the 25-day bracket.

Nippon India Small Cap Fund, the biggest smallcap scheme with Rs 46,000 crore worth of assets, would take 27 days to sell off half of its portfolio. A liquidation of 25 percent of Nippon India Small Cap Fund's portfolio can be done in 13 days.

Kotak Small Cap Fund, which is the sixth biggest with assets of Rs 14,196 crore, would take 33 days for 50 percent liquidation.

Also read | Stress test: DSP Small Cap Fund needs 32 days to liquidate 50% of its portfolio

When it comes to the mid-cap funds, 50 percent liquidation in Franklin India Prima Fund can be done in 4 days, while 25 percent sell-off would take two days. Franklin India Prima Fund had an AUM of Rs 10,181 crore as of February end.

Additionally, 50 percent liquidation in Canara Robeco Mid Cap Fund would take 1.61 days and 0.80 days for 25 percent liquidation.

After the Securities and Exchange Board of India raised concerns about “froth” building up in mid and smallcap segments through its February 27-28 communications, the Association of Mutual Funds in India (AMFI) asked asset management companies to conduct stress tests and publish the results on their websites as well as that of AMFI once every 15 days starting March 15.

The objective of the test is to make mutual fund investors aware of the risks and impact of market volatility on the liquidity of their equity portfolio to help them take appropriate decisions to rebalance and redirect liquidity and savings.