The Securities and Exchange Board of India has asked Asset Management Companies – AMCs to conduct stress test on all liquid and money market schemes every month. In a circular issued from Mumbai today, SEBI has said that the new move will strengthen the risk management practices of these companies and safeguard the mutual fund industry from possible defaults.
SEBI has said that the stress test should be carried out internally at least on a monthly basis, on the risk parameters like interest rate, credit and liquidity and redemption. In the event of stress test revealing any vulnerability, AMCs should bring it to the Trustees’ notice and take corrective action as deemed necessary, to reinforce their robustness. The market regulator has said that each AMC should have documented guidelines, to deal with the adverse situation effectively.
The circular which has come into immediate effect further says that AMCs and trustees should review the stress testing policy at least on an annual basis, in light of the evolving market scenarios. Trustees would also be required to report compliance in the half yearly report submitted to SEBI.