SEBI has proposed mandatory separate disclosure of expenses and yields for regular and direct mutual fund plans. Read on to know other proposals and their reasons
Market regulator Securities and Exchanges Board of India proposed that the mutual fund industry should mandatorily disclose the expenses, expense ratios, returns, and yields of regular and direct plans separately. To enhance transparency, and for easy comprehension of investors, the regulatory body issued a consultation paper with the above proposal on Friday, seeking feedback from industry experts and market participants by October 18.
Proposals & Reasons
Separate Disclosures: Asset management companies will now disclose expenses, expense ratios, returns, and yields of both direct and regular plans separately. This is because the parameters differ for each plan. SEBI has proposed this change to standardise disclosures.
Currently, expenses, expense ratio, returns and yields of all regular plans are disclosed by asset management companies (AMCs), which can be misleading to new mutual fund investors unaware of direct plans.
Mutual funds cannot charge distribution expenses and commissions on investors of a direct plan, resulting in a lower expense ratio for direct plans compared to regular plans. Consequently, the returns of the direct and regular plans also vary. To standardize disclosures, the format for half-yearly financial statements for Mutual Fund schemes will be reviewed and finalized by AMFI, in consultation with Sebi.
Colour codes: SEBI has proposed to use colour-coded risk-o-meters to better represent risk in mutual fund schemes to enhance the pictorial representation of the schemes and for easy comprehension of investors. The risk-o-meter will have six levels of risk, each identified by a different colour: Irish Green for low risk, Chartreuse for low to moderate risk, Neon Yellow for moderate risk, Caramel for moderately high risk, Dark Orange for high risk, and Red for very high risk. Any changes in the risk level of a scheme or its benchmark will be communicated to unitholders through a notice and addendum, as well as via email or SMS.