SEBI Mandates Separate Disclosures For Direct, Regular Mutual Fund Plans
The returns for the past six months, as well as compounded annualised yields, must also be reported separately for each plan.
The Securities and Exchange Board of India put forth on Tuesday new guidelines requiring mutual fund houses to provide separate disclosures for direct and regular plan schemes in their half-yearly financial results. The move is aimed at helping investors make informed decisions.
Now the mutual funds will be required to disclose specific financial metrics, such as expenses, returns, and yield, separately for direct and regular plans, according to a SEBI circular.
Direct plans, which were introduced by SEBI in 2013, are those that investors purchase directly from asset management companies, bypassing intermediaries and distributors. Since no distribution fees are involved, direct plans generally have a lower expense ratio compared to regular plans, which incur distribution costs. This distinction means that, although the two plans may invest in the same assets, their performance is different.
SEBI's new mandate is that mutual fund houses disclose total recurring expenses separately for both direct and regular plans. The returns for the past six months, as well as compounded annualised yields, must also be reported separately for each plan.
Previously, mutual funds indicated the level of risk associated with their schemes through categories such as 'Low', 'Moderate' or 'High' risk. With the new guidelines, these categories will now be represented using a color scheme to make it easier for investors to visually assess the risk level of each scheme.
The six levels of risk will be assigned distinct colours: low risk will be marked in Irish green, low to moderate risk in Chartreuse, moderate risk in neon yellow, moderately high risk in caramel, high risk in dark orange, and very high risk in red. This colour scheme will be applied across all promotional materials and digital platforms to standardise risk representation.
SEBI has outlined new protocols for communicating changes in the risk profile of mutual fund schemes. If there is a change in the risk-o-meter for any fund, mutual fund houses will now be required to notify investors through a notice-cum addendum, along with an additional communication via email or SMS.
The notice must clearly display both the existing and revised risk ratings, providing transparency and helping investors stay fully informed about any adjustments to their portfolios.
The new regulations will come into effect on Dec. 5.
