The Association of Mutual Funds in India (AMFI) instructed asset management companies (AMCs) to conduct monthly liquidity stress tests
Association of Mutual Funds in India (AMFI): The Association of Mutual Funds in India (AMFI) has issued instructions for asset management companies (AMCs), where they need to conduct monthly liquidity stress tests for their small and mid-cap mutual fund schemes, where this data need to upload over AMCs’ official portals and AMFI’s website by the 15th of each subsequent month. These instructions are issued after viewing increasing retail investor’s interest in these segments of the market. to protect the interest of the overcrowding of funds at a few channels and address concerns over liquidity and potential risks to investors.
Association of Mutual Funds in India (AMFI)
What is a Liquidity stress test?
Liquidity refers to the degree to which an asset or security can be quickly bought or sold in the market without significantly affecting its price. In simpler terms, it describes how easily an asset can be converted into cash without causing a substantial change in its value. High liquidity means an asset can be easily traded, while low liquidity suggests it may be more challenging to buy or sell the asset without impacting its price. The liquidity stress test is a method designed to assess the ease with which stocks held by a mutual fund scheme can be traded in the market. Its purpose is to uncover the level of liquidity, or the availability of stocks for trading, within the scheme’s portfolio. Specifically, the test focuses on determining the amount of free float in the portfolio, which refers to stocks available for trading on the stock exchange. During the test, shares that are freely available for trading, typically owned by retail investors and not subject to any lock-in period, are identified as part of the free float. By conducting these stress tests and disclosing the results, Asset Management Companies (AMCs) provide investors with valuable insights into the liquidity profile of their small and mid-cap schemes.
What is the Liquidity?
Liquidity refers to the degree to which an asset or security can be quickly bought or sold in the market without significantly affecting its price.
What is the Association of Mutual Funds in India (AMFI)?
The Association of Mutual Funds in India (AMFI) is a non-profit industry body of the asset management companies (AMCs) of all Mutual Funds in India that are registered with the Securities and Exchange Board of India (SEBI).
