Amid strong inflows, the stress level in small-cap mutual fund schemes continue to remain high between January and November of last year, despite a sharp fall in prices of small and mid-cap stocks.
The assets under small-cap increased by 21 per cent last November to ₹3.70 lakh crore against ₹3.05 lakh crore logged in January, 2025.
Tata Small-cap fund and Quant Small-cap fund registered the highest number of dayss—79 days and 73 days to dilute 50 per cent of their portfolio in November against 34 days and 51 days in January, 2025, according to the Association of Mutual Funds in India data.
The AUM of Quant Small-cap and Tata Small-cap increased to ₹30,166 crore (₹25,190 crore) and ₹11,416 crore (₹8,885 crore).
Similarly, HDFC Small-cap fund said it will take 65 days to off-load 50 per cent of its portfolio in November against 50 days in January. HDFC Small-cap AUM increased to ₹38,021 crore (₹31,234 crore).
However, Nippon India Small-cap was an exception among large fund houses to report that it will take 31 days to offload 50 per cent of portfolio in November against 36 days in January. Its AUM increased to ₹68,757 crore (₹57,500 crore).
In the same period, the stress level in mid-cap schemes were almost similar though the inflows increased steadily.
A stress test determines the time taken by the fund house to liquidate 50 per cent and 25 per cent of its portfolio in the event of a downturn in the equity market and a subsequent surge in investor redemptions. Mutual fund companies conduct these stress tests to assess the liquidity of small and mid-cap portfolios.
On concern over frothy valuation and increasing inflows, Sebi directed mutual funds to conduct stress test on their small and mid-cap funds. It wanted to ensure that fund houses have enough liquidity and a plan in place to sell the stocks.
The Association of Mutual Funds in India was asked AMCs to conduct stress tests on their schemes based on last month’s data and disclose the findings on 15th of every month.
Nirav Karkera, Head of Research at Fisdom said despite new listings, small-cap stress metrics remain elevated because fund inflows have grown much faster than underlying liquidity.
A large share of capital, especially from new NFOs, has been concentrated in a narrow set of liquid names, increasing crowding rather than diversification, he said.
“Though we do not see an immediate liquidity risk event materialising, a limited tradable depth in the near term could pose a challenge to effective fund management,” said Karkera.
Published on January 3, 2026