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Yearender 2021: Seven Big Sebi Changes That Affect Mutual Fund Investors

The Securities and Exchange Board of India (Sebi) keeps coming with a new set of rules and regulation to strengthen the system to make it fairer and more transparent for investors. Here is roundup of what all new regulation and changes come in to existence in year 2021.

Yearender 2021: Seven Big Sebi Changes That Affect Mutual Fund Investors
Yearender 2021: Seven Big Sebi Changes That Affect Mutual Fund Investors
outlookindia.com
2021-12-29T08:14:45+05:30

The mutual fund industry has been evolving over time with changing market conditions. Several new rules and regulations have strengthened the system and made it fairer and more transparent for investors. Here are some key rulings by the capital markets watchdog, the Securities and Exchange Board of India (Sebi), that were either implemented or announced in 2021.

Mutual Fund Risk-0-Meter

In October 2020, Sebi came up with a new circular on MF risk-o-meter and made it mandatory for fund houses to indicate the risk level of their schemes on a six-stage scale from “low” to “very high”. According to this ruling, the risk-o-meter should be evaluated on a monthly basis. This ruling was implemented from January 2021.

It also made it mandatory to disclose the risk-o-meter risk level along with the portfolio disclosure for all the schemes on fund houses websites as well as the website of the Association of Mutual Funds in India (AMFI) within 10 days of the close of each month. If there are any changes in the risk-o-meter reading with regard to the schemes, the fund houses need to communicate that to the investors.

 Asset Allocation in Multicap Funds

In September 2020, Sebi came up with a specific circular on asset allocation by multi-cap funds, making it mandatory for the fund to allocate at least 25 per cent each to the large-cap, mid-cap and small-cap companies. This ruling was also implemented from January 2021. Perhaps, that’s why we saw so many new fund offers (NFOs) for multi-cap schemes in 2021. The fund houses launched new schemes to meet the allocation norms.

Renaming of Dividend Option

Sebi introduced a labeling norm for dividend option of MF schemes. This came into effect from April 2021. As per the new norm, mutual fund schemes with dividend options are now called income distribution-cum-capital withdrawal schemes. Accordingly, dividend payout plans are called payout of income distribution-cum-capital withdrawal options. Similarly, dividend reinvestment plan is called reinvestment of income distribution-cum-capital withdrawal option, while dividend transfer plan is now called transfer of income distribution-cum-capital withdrawal option.

Net Asset Value (NAV) Applicability

Before February 2021, investors used to get the same-day NAV as long as the investment value was less than Rs 2 lakh and the investment was made before the cut-off timing. From February 2021, investors would get the NAV of the day when the money reaches the fund house.

Stringent Norms for ESG Funds

The capital markets regulator proposed stringent norms for Environment Sustainability and Governance (ESG) funds in a consultation paper floated in October 2021. In the consultation paper, Sebi has suggested that ESG mutual fund schemes fall under the thematic category so they should invest not less than 80 per cent of the total ESG assets under management in securities following ESG as a theme. 

The regulator has also proposed that the residual portion of the investment should not be starkly in contrast to the philosophy of the scheme from the theme. Asset management companies (AMCs) shall endeavour to have a higher proportion of the assets under the ESG theme and make suitable disclosures, it said. So far this is just a proposal, and not taken the shape of a ruling.

Two-Tiered Benchmarking

Sebi has issued guiding principles for bringing uniformity in the benchmarks against which a scheme’s performance is measured. According to the new directive, there would be a two-tiered structure for benchmarking of schemes falling under certain categories.

According to the directive, the first-tier benchmark shall be reflective of the category of the scheme and the second-tier benchmark should be demonstrative of the investment style or strategy of the Fund Manager within the category. All the benchmarks followed should necessarily be Total Return Indices,” says the directive.

This was supposed to be implemented from December01 2021, but now this will be applicable from April 2022.

Launch of Silver ETF

In October 2021, Sebi allowed the launch of silver exchange-traded fund (ETF) by fund houses in line with Gold ETFs. Now with help of silver ETFs, even small investors will be able to invest in silver and get advantage of good price mechanism. They wouldn’t have to face purity issue or physical holding risk and will have higher liquidity as it will be easier to buy and sell silver ETFs as and when required. Fund houses have filed offer documents with Sebi to get approval for silver ETFs.

 

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