Are small cap mutual funds still risky? This is what March 2025 stress test reveals —all you need to know

Have small cap mutual funds become any safer now? The latest stress test, it appears, doesn't reflect that. The test for March indicates that it will take as long as 25-57 days to liquidate 50 per cent of the portfolio of high-risk small cap mutual funds. Most of these schemes have anywhere between 65 and 89 per cent of their portfolio invested in small cap stocks. Notably, small cap funds are supposed to invest a minimum of 65 per cent of their assets in small caps.

Here, we list the most illiquid small cap mutual fund schemes based on the data they shared on the Association of Mutual Funds in India (AMFI) website.

Axis Small Cap Fund, as the table below shows, will take 25 days to liquidate 50 per cent of its portfolio and 13 days to liquidate 25 per cent of its portfolio. HDFC Small Cap Fund will take as long as 57 days to liquidate 50 per cent of its portfolio and 28 days to liquidate 25 per cent of its portfolio. This scheme has 80 per cent of its assets invested in small cap stocks, whereas DSP Small Cap fund has 89 per cent of its assets invested in small cap stocks. 

(Source: AMFI)

The schemes with over 80 per cent of their assets allocated to small cap stocks are Tata Small Cap Fund, HDFC Small Cap Fund, and DSP Small Cap Fund.

What is a stress test?

For the uninitiated, all mutual fund houses are meant to show stress test results for their small and mid-cap mutual fund schemes every month.

This is according to the directive of the capital market regulator Sebi, which instructed all the fund houses to release the results of stress tests by the 15th of every month based on the previous month’s data. So, the data shared on April 15, 2025, reveals the data for the preceding month. 

This data is meant to be shared on AMFI's website every month. The step was taken in view of the spike in the valuation of small and mid cap stocks. The first disclosure happened on March 15, 2024.

Stress test results show the number of days required to liquidate 50 per cent and 25 per cent of the portfolio, respectively, on a pro rata basis under stress conditions. While calculating the time taken, 20 per cent of the portfolio's least liquid securities are ignored.

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