SEBI Directs Mutual Funds to Disclose Information Ratio for Equity Schemes

The Securities and Exchange Board of India (SEBI) has taken another significant step towards ensuring greater transparency and investor awareness in the mutual fund industry. In a circular issued on 17 January 2025, SEBI mandated the daily disclosure of the Information Ratio (IR) for equity-oriented mutual fund schemes. This move seeks to provide investors with a clearer understanding of a scheme’s risk-adjusted returns (RAR) and performance consistency.

Understanding the Information Ratio

The Information Ratio (IR) is a key metric that measures a fund’s performance relative to its benchmark, considering both returns and risk. It is calculated as the excess return (portfolio return minus benchmark return) divided by the standard deviation of the scheme’s daily returns. The benchmark for calculation will be the Tier 1 benchmark used by equity mutual funds. By incorporating volatility into the formula, the IR highlights a fund manager’s ability to generate excess returns consistently while managing risks effectively.

SEBI has emphasised the importance of this metric, noting that it provides a more nuanced evaluation of fund performance compared to traditional measures that may overlook volatility and consistency.

Implementation and Investor Benefits

The new disclosure requirement applies exclusively to equity mutual fund schemes. Fund houses must display the IR prominently on their websites, alongside other performance data, which must be updated daily. Additionally, SEBI has directed the Association of Mutual Funds in India (AMFI) to ensure that these disclosures are made available in a standardised, downloadable, and machine-readable format on their website.

This initiative is expected to empower investors with better insights into the risk-adjusted performance of mutual funds, enabling more informed decision-making. By mandating the disclosure of IR, SEBI has reinforced its commitment to fostering a transparent and investor-centric mutual fund industry.

Conclusion

SEBI’s introduction of the Information Ratio as a mandatory disclosure for equity mutual fund schemes highlights an important step by the market regulator in enhancing transparency and investor understanding. This measure will help investors assess both the returns and risks of funds more comprehensively, fostering confidence and accountability in the mutual fund space.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.