Are your mid- and small-cap funds under stress?

What good is an investment if you can't sell it well? This holds true for both individual investors and mutual funds alike. Since mutual funds hold stock portfolios, the ability to sell or exit these stocks at the right time is a crucial aspect to be considered. Stocks with low liquidity can be challenging to sell, especially in the volatile segment of mid- and small-caps. This is because most stocks in these segments do not always enjoy healthy trading volumes on the exchanges. In light of this, the Securities and Exchange Board of India (SEBI) has advocated (through reports only) for thorough liquidity stress testing for mutual funds focusing on mid- and small-cap stocks. SEBI's concern Following an extraordinary rally in mid- and small-caps last year, the mid and small-cap funds delivered massive returns of 40 and 45 per cent, respectively, in 2023. This impressive performance led to investors pouring a whopping Rs 63,949 crore i