SEBI proposes standardised disclosure for mutual funds
In a move that will make mutual fund schemes more transparent, the Securities and Exchange Board of India (SEBI) on Friday proposed a series of regulations, including disclosure of expenses, expense ratio, returns and yields on both regular and direct plans separately.
In a consultation paper, the markets regulator said, “In order to facilitate enhanced transparency, ease of comprehension and a standardised approach towards disclosures by the mutual fund industry, certain changes have been proposed in this consultation paper which will further aid informed decision making by investors.”
In 2013, SEBI had introduced direct plans to help DIY (do-it-yourself) investors. Investors seeking to go direct are not charged any distribution fee by the fund house. Consequently, the expense ratio for such investors comes down by around 1%-1.5% annually, depending on the scheme.
For example, if an investor puts in Rs 1 lakh in both direct and regular mutual funds with the same return of 15% in one year, the direct fund could yield a 14.5% return, while the regular fund might offer a 13.5% return. Over a 15-20-year period, the lower expense helps investors accumulate larger sums of money.
SEBI has also said the disclosure of half-yearly financial results of a scheme shall contain separate disclosures for total recurring expenses for direct and regular plans, apart from the disclosure of total recurring expenses of the scheme. The format will be finalised by the Association of Mutual Funds in India in consultation with SEBI.
In addition, it has also proposed that the risk-o-meter should be colour coded in a standardized format.
Any changes in the risk-o-meter of the scheme or its benchmark should be communicated through a notice-cum-addendum and via e-mail or SMS to unitholders of that particular scheme, said SEBI.
The market regulator has proposed to implement it within 30 days of notifying the guidelines. Market participants and experts can send in their views by October 18.