SEBI Mandates Separate Disclosures For Direct, Regular Mutual Fund Plans

On April 12, 1988, the Indian government passed a resolution creating the Securities and Exchange Board of India as a non-statutory organization. The Securities and Exchange Board of India became a statutory body on January 30, 1992, when the Securities and Exchange Board of India Act, 1992 (15 of 1992) came into force.

SEBI’s new rules for mutual funds

Mutual fund companies must now separately disclose direct and regular plan schemes in their half-yearly financial reports, according to new rules announced by the Securities and Exchange Board of India on Tuesday. Helping investors make informed decisions is the aim of the action. According to a recent SEBI circular, mutual funds must now report specific financial metrics—such as costs, yield, and returns—differently for regular and direct plans.

Direct plans, initially made available by SEBI in 2013, allow investors to buy assets straight from asset management firms, eschewing distributors and middlemen. The expense ratio of direct plans is typically lower than that of regular plans because there are no distribution fees. This difference shows that even though the two plans may invest in the same assets, their performance is different.

SEBI directed Mutual Fund to disclose expenses

SEBI now mandates that mutual fund companies disclose all ongoing expenses for both regular and direct plans separately. The compound annualized returns and yields for the preceding six months must be reported separately for each plan.

Risk classifications like “low,” “moderate,” or “high” have historically been used by mutual funds to denote the degree of risk involved in their schemes. The new guidelines will now use a colour scheme to represent these categories, making it easier for investors to visually evaluate each scheme’s risk level.

SEBI has established new protocols for notifying mutual fund

Irish green will stand for low risk, chartreuse for low to moderate risk, chocolate for moderately high risk, dark orange for high risk, and red for very high risk. We will assign distinct colours to each of these six risk levels. This colour scheme will be applied to all digital platforms and promotional materials in order to standardize the representation of risk.

SEBI has established new protocols for notifying mutual fund schemes of changes to their risk profile. In the event that the risk-o-meter for any fund changes, mutual fund companies will now be required to notify investors and provide addenda in addition to extra emails or SMS. The notice must clearly show the most recent and updated risk ratings in order to maintain transparency and help investors stay fully informed about any changes to their portfolios.