Nifty Smallcap 100 index tumbles another 2.5%, down over 6% in March so far

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Also Read: Sebi chief flags risk of bubble in stock market Furthermore, apart from recent actions against non-banking financial companies (NBFCs), the Enforcement Directorate's ongoing investigation into whether proceeds from the Mahadev betting case were routed into the small-cap and SME segments of the market also added to Monday's market downturn. The market regulator, late last month, asked mutual fund houses to put in place a framework to safeguard the interest of investors who invested in small and mid-cap funds amid the froth building up in the segments.

This came against the backdrop of huge flow in the small and mid-cap schemes of mutual funds over the past few quarters. Also Read: 15 multibagger small-cap stocks tumbled between 15% and 30% from 52-week highs; check full list Buch said that by March 15, Sebi will make available a disclosure format on stress testing for small- and mid-cap funds.

Investors will benefit from knowing how many days the funds would need to liquidate their underlying portfolios in the event of unfavourable market conditions. Buch explained that the stress tests would determine how many days MFs would need to liquidate the investors’ portfolios if prices fell and volumes jumped.

The regulator also wants small and medium enterprises (SMEs) preparing to go public to disclose risk factors in greater detail to potential investors. In the calendar year 2023, small-cap and mid-cap schemes accounted for 40% of the total net inflows into active equity schemes, receiving ₹64,000 crore of total inflows of ₹1.6 trillion.