SEBI Suggests Disclosure Of 'Risk-Adjusted Return' For Mutual Fund Schemes

The Securities and Exchange Board of India suggested that mutual fund schemes should disclose 'risk-adjusted return' in addition to the regular return. This is aimed at assisting investors in making well-informed investment choices.

Risk-adjusted return measures the performance of a scheme's portfolio more comprehensively by calculating the return generated per unit of risk undertaken to attain that return.

The current regulatory framework doesn't mandate the disclosure of RAR along with the returns of an MF scheme.

Further, there is no uniform practice followed by asset management companies regarding disclosure of RAR of their scheme.

The return on investment is a major factor attracting investors to invest in any MF scheme and is highlighted by the AMCs while marketing respective schemes.

Considering the significance of volatility of performance in determining the suitability of MF schemes, it is desirable that the RAR of the scheme is disclosed along with disclosure of its scheme performance, SEBI said in its consultation paper.

"Information Ratio (IR) is an established financial ratio to measure the RAR of the scheme portfolio. It is often used as a measure of a portfolio manager's level of skill and ability to generate excess returns relative to a benchmark, and it also attempts to identify the consistency of the performance by incorporating a tracking error or standard deviation component into the calculation," it said.

To bring uniformity across different MFs, SEBI has also proposed a methodology for the calculation of IR for different categories of mutual fund schemes.

SEBI has sought comments from the public till June 28 on the proposals.

(With inputs from PTI)