Don't stress over things

Over the last few days, a number of mutual fund companies have made public the results of a 'stress test' that the markets and mutual fund regulator SEBI has asked them to conduct on their small and mid-cap funds. The result has been a series of headlines in the business papers in the pattern of "6 days required for 50% portfolio liquidation of XYZ Fund" and so on. The stress test, whose methodology is not public, is designed to tell us in how many days would a fund be able to liquidate 25 per cent and 50 per cent of its portfolio. Of course, as everyone who has any familiarity with how the equity markets work, they do nothing of the sort. If a stress test says that a fund can sell off half its portfolio in six days, it does not mean such a thing will happen. It just means that if you make an Excel spreadsheet with certain assumptions, the number six comes up