Recently, to address the growing froth in small-cap funds, SEBI mandated a specific test to ensure these funds can manage sudden large redemptions. What is this test called?

The Securities and Exchange Board of India (SEBI) has expressed concerns regarding the accumulation of excessive speculation, or "froth," in small-cap funds. To mitigate potential risks from this volatility, SEBI has required that these funds be prepared to handle sudden, large withdrawal requests by investors, ensuring they have adequate liquidity and a solid plan for quickly liquidating assets if needed. Accordingly, the Association of Mutual Funds in India (AMFI) has directed Asset Management Companies (AMCs) to conduct 'stress tests' on their financial schemes. These tests are designed to assess the funds' ability to cope with extreme financial pressures and maintain operational stability under adverse market conditions.