Mumbai: Starting from the 2021, mutual fund houses and Asset management companies in the country will have to clearly mention a risk-meter on their individual schemes.
SEBI, the markets regulator, asked mutual funds to show a monthly risk-meter containing portfolio disclosures for all schemes. The policy was announced on Monday evening. The regulator has also asked MFs to report this information to the AMFI (Association of Mutual Funds in India) website.
SEBI’s latest circular starts effective from January 1, 2021 for policies commencing or launching thereafter. However, mutual funds are free to implement the circular before effective date.
Based on recommendations of Mutual Fund Advisory Committee (MFAC), SEBI reviewed guidelines for product labelling in mutual funds. Accordingly, the risk-meter shall contain six levels of risk – low risk, low to moderate risk, moderate risk, moderately high risk, high risk and very high risk.
The very high risk category has been added to the five other categories.
The risk meter level should be depicted and methodology specified. The risk level is to be mentioned as on March 31 of every year and fund-houses are also expected to denote any variance in risk levels over the last year.
The regulator also expects MFs to communicate with individual schema/folio-holders to be informed of any change in risk-meter. MFs have been told to communicate by way of a notice-cum-addendum, e-mail or SMS to unit holders. Further, AMCs shall ensure that the said disclosure is made to investors at the time of subscription of such options/plans.
Sebi issued another circular on the review of dividend option and plan in case of mutual fund schemes. There is a need to clearly communicate to the investor that, under the dividend option of a mutual fund scheme, certain portion of his capital (equalisation reserve) can be distributed as dividend, the market regulator said.
All the existing and proposed schemes of mutual funds will name or rename the dividend option as income distribution. Under the new norms, dividend payout will be called a income distribution cum capital withdrawal option. The provisions shall be effective from April 1, 2021.
Offer documents shall clearly disclose that the amounts can be distributed out of investors capital (equalisation reserve), which is part of sale price that represents realised gains.