Effective from November 1, 2024, SEBI (Securities and Exchange Board of India) has rolled out three important changes in how Asset Management Companies (AMCs) disclose key information about mutual fund schemes. Aimed at making mutual fund investing more transparent and user-friendly, these changes address critical areas: scheme expenses, returns, and risk assessment. Here’s what you need to know:
- Transparent Expense Disclosure
SEBI’s new rules require AMCs to break down expenses for each scheme into two parts: direct and regular plans. Previously, only the total recurring expense was disclosed, leaving investors with less clarity. With this change, investors can better understand how much they’re paying based on their choice of plan, enabling a clearer assessment of costs and the value of their investment.
- Standardised Returns Disclosure
Not all AMCs have previously disclosed half-yearly returns and annualized yields, making it harder for investors to compare performance across schemes. Under SEBI’s new guidelines, standardization of these disclosures is now mandatory. This change means that investors can now compare performance consistently across schemes, which will make it easier to assess which AMCs and funds align best with their goals.
- Colour-Coded Risk-o-Meter
Inspired by the Japanese concept of “mistake-proofing,” SEBI has introduced a color-coded risk assessment for mutual fund schemes, providing a visual representation of the risk level associated with each scheme. Now, schemes will be labeled with colors that represent risk categories: Low, Low to Moderate, Moderate, Moderately High, High, and Very High. This simple system will help investors quickly understand the risk involved without needing to interpret complex data.
Why This Matters to Investors
Together, these changes aim to create a more transparent and efficient investing environment. With clearer information on expenses, consistent returns reporting, and an intuitive risk assessment tool, investors now have better tools to make informed decisions. SEBI’s updates represent a step forward in protecting investors and promoting fair and accessible mutual fund investing.
Disclaimer: This blog has been written exclusively for educational purposes.
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