MFs Should Separately Disclose Expenses, Half-yearly Returns for Direct and Regular Plans and Risk-o-meter: SEBI

Moneylife Digital Team 06 November 2024

Investor Interest

Market regulator Securities and Exchange Board of India (SEBI) has introduced separate disclosure requirements for expenses, half-yearly returns, annualised yields in direct and regular mutual fund (MF) plans, and a colour-coded system for the existing risk-o-meter. These new requirements, aimed to improve investor protection and clarity around MF disclosures, will be implemented from 5 December 2024, SEBI says.

In a circular, SEBI says the Association of Mutual Funds in India (AMFI), in consultation with the market regulator, will standardise formats for disclosing expenses, half-yearly returns, and annualised yields for direct and regular plans.

Investments under the direct plan of a mutual fund-MF scheme, which was introduced on 13 September 2012 and came into effect from 1 January 2013, are investments that are not routed through distributors of MFs. As distribution expenses and commission cannot be charged to investors of a direct plan, the expense ratio of the direct plan of any scheme is lower than that of the regular plan of the same scheme; hence, the returns of the direct and regular plans also differ.

As per SEBI's revised disclosure requirements, the expenses disclosed in terms of serial number 6.4 of the 12th Schedule and Regulation 59 SEBI (Mutual Funds) Regulations, 1996 will contain separate disclosures for total recurring expenses for direct and regular plans, apart from the disclosure of total recurring expenses of the scheme.

In terms of serial numbers 7.1 and 7.2 of 12th Schedule and Regulation 59 SEBI (Mutual Funds) Regulations, 1996, returns during the half year and compounded annualised yields, respectively, will be separately disclosed for direct and regular plans, the market regulator says.

"For all other regulatory disclosures where expenses, expense ratio, returns and/or yield of the schemes are required to be disclosed, separate disclosures should be made for both regular and direct plans," SEBI says.

Further, based on the recommendation from the mutual fund advisory committee (MFAC), SEBI decided on a colour scheme for the risk-o-meter for MFs in addition to the existing labels relating to levels of six risk with colours, i.e., low (Irish green), low to moderate (chartreuse), moderate (neon yellow), moderately high (caramel), high (dark orange) and very high (red).

SEBI says, "Any change in the risk-o-meter should be communicated to unitholders of that particular scheme by way of a notice-cum-addendum as well as an email or SMS."

To standardise the disclosure format and for ease of understanding the change in the level of risk for unitholders, the market regulator also asked MFs to disclose the existing risk-o-meter along with the revised risk-o-meter.

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