Asset management companies are expected to make additional disclosures in small and mid-cap funds every month on parameters such as valuation, volatility, investor concentration and stress tests.

With investors rushing into mid-cap and small-cap funds, there is a need to raise investor awareness of the health of the schemes.

The first set of required disclosures will be available on the websites of the AMCs and the Association of Mutual Funds of India (Amfi) later this month.

"We told Amfi to ask the AMCs to disclose certain additional data points which relate to valuation, volatility, investor concentration, and percentage holding in small and mid-cap stocks along with disclosures on stress testing results," said Amarjeet Singh, wholetime member, Sebi, at an Indian Chamber of Commerce- organised event.

The stress test result will show the time AMCs may take to liquidate securities to the tune of 25 per cent and 50 per cent of AUM of the schemes on a pro-rata basis. A format has been worked out in consultation with Amfi, Singh said.

The decision to provide additional disclosures comes at a time there have been relentless inflows into higher-risk small and mid-cap funds raising concerns over the possibility of frauds and first-mover advantage.

The net asset under management in small-cap and mid-cap funds was Rs 249,079.06 crore and Rs 294,490.53 crore, respectively, in February 2024 compared with Rs 131,586.46 crore and Rs 183,246.27 crore in February 2023.

Singh said Amfi along with Sebi has been deliberating over the concerns relating to the buildup of possible frauds in the small- and mid-cap segments of the market.

"So we have reviewed data concerning stress testing of some of the schemes and based on that the need was felt that investors should be aware of certain additional risks involved by investing in such schemes."

A need was also felt to protect investors from any first-mover advantage — that could be created by fund managers who first sell the more liquid and high-quality stocks during the initial redemption leaving the remaining investors with a sub-par portfolio, Singh said.