SEBI directs asset managers to disclose more risks about small, mid-cap funds
India's market regulator has asked the country's asset managers to give investors more information about the risks associated with their small and mid-cap funds, according to a fund manager and two people with knowledge of the matter.
Small and mid-sized funds have seen high inflows, causing concern among authorities about how they would hold up in the event of a sharp market selloff. The Securities & Exchange Board of India (SEBI) has also been reviewing stress tests conducted by such funds, sources have previously said.
The funds are being asked to disclose how long it might take to accommodate large redemptions, what impact large outflows could have on the value of the portfolio and how much cash and liquid assets the fund holds to meet outflows, the people said.
«Investment committees were always aware of liquidity challenges but investors were not. Once this information is available to them, they can compare each fund,» said Harsha Upadhyaya, chief investment officer at Kotak Mutual Fund.
The Association of Mutual Funds in India (AMFI), which is working with SEBI, is proposing a standardised format for the disclosure of risks, he said, adding that the disclosures would be made on a regular basis.
SEBI and AMFI did not immediately respond to requests for comment.
Heavy inflows have sent the Nifty small cap 250 index surging 71% over the past 52 weeks and lifted the Nifty mid cap 100 index 64%. That far exceeds the benchmark Nifty's 28% rise.
Funds are likely to begin making these disclosures from April, said one of the sources who was not authorised to speak to media and declined to be identified.
Mutual funds tend to keep between 1% and 5% of their assets as cash as a prudent measure to meet outflows, according to
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