Mutual funds have gone through many regulatory changes in this year which is about to end soon. In order to make mutual funds more transparent and safer for investors, Sebi has introduced some measures which will be effective in the New Year. Some of these changes will come into effect from January 1, 2021 itself. Here’s the list:
Change in portfolio allocation rules for multi cap equity mutual funds
Sebi, in September, tweaked the portfolio allocation rules for multi cap equity mutual fund schemes. These new rules will become effective from next year. According to the new rules laid down by Sebi, a multi cap mutual fund scheme will have to invest at least 75% in equities. Also, going forward, these schemes will have to invest at least 25% each in large-, mid-, and small-cap stocks. Currently there is no such allocation restriction and fund managers can invest across the market cap as per their own choice. At present the minimum equity allocation must be 65%.
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Sebi had provided time till January 31, 2021 to mutual fund houses to comply with the latest rules, within one month from the date of publishing the next list of stocks by AMFI.
Following concern in the industry, Sebi later introduced a new mutual fund category called, flexi cap fund which is required to invest at least 65% of the corpus in equity with no restrictions on investing in large-, mid- or small-cap company stocks. Some AMCs have already reclassified their multi cap schemes to flexi cap category to avoid any change in investment management of the fund.
Change in NAV calculation
From January 1, investors will get the purchase NAV of the day when investor’s money reach the AMC, irrespective of the size of the investments. “It has been decided that in respect of purchase of units of mutual fund schemes (except liquid and overnight schemes), closing NAV of the day shall be applicable on which the funds are available for utilization irrespective of the size and time of receipt of such application,” said the Sebi circular issued in September. The new NAV rules will not be applicable to liquid and overnight funds.
Under current rules, the NAV of the same day is considered for purchases of less than â‚¹2 lakh, even if the money does not reach the asset management company (AMC), but the order is placed within the cut-off time.
New Riskometer tool
Sebi introduced a fresh category of â€˜very highâ€™ risk on its riskometer tool for investors to make better decisions with high risk mutual funds. It replaces the old model based simply on a schemeâ€™s category without adequately considering its actual portfolio. The new riskometer will become effective from January 1, 2021. Risk-o-meter shall be evaluated on a monthly basis and AMCs shall disclose the Risk-o-meter along with portfolio disclosure for all their schemes on their website and on AMFI website within 10 days from the close of each month.
Mutual Funds also have to publish a history of riskometer changes every year. Further, any change in risk-o-meter shall be communicated to unitholders of that particular scheme.
Renaming of dividend option
Effective April 2021, mutual funds will have to rename dividend options as income distribution cum capital withdrawal.
From 1 Jan, 2021, inter-scheme transfer in close-ended funds can only be done within 3 business days of the allotment of the schemeâ€™s units to investors and not thereafter. Sebi came out with a circular in October. Inter scheme transfers involve shifting of debt papers from one mutual fund scheme to another. Under existing rules, Sebi only requires that such ISTs be done at market prices and that the transfer should be in conformity with the investment objective of the recipient scheme.
Sebi also laid down that no ISTs shall be allowed if there is any negative market news or rumour about a security in the mainstream media or an alert is generated about a security by the fundâ€™s internal risk assessment in the previous 4 months.