As per latest Sebi guidelines, asset management companies (AMCs) will now have to disclose portfolio for all their schemes, as on the last day of the month, on their websites in a downloadable format. The same rule will apply for half-yearly and annual disclosures. Also, the number of investors holding over 25% of the NAV in a scheme and their total holdings in percentage terms will have to be disclosed in the Statement of Accounts issued after the new fund offer (NFO) and also in the half-yearly and annual results.
The Securities and Exchange Board of Indias (Sebi) latest master circular issued last week and which supersedes the previous master circular has underlined that growth funds maintaining 65% of their investments in equities will have to be benchmarked against the Sensex or the Nifty or BSE 100 or Crisil 500. Similarly, balanced funds with an equity investments of 40-65% will have to be compared with a tailored index having 50% of its weight selected from any equity index and the other 50% from an appropriate bond return index.
Income funds with 65% or more of investments in debt instruments will have to be compared with a suitable index that is a representative of the fund's portfolio.
To make the risk profiling of mutual funds clear to investors, the master circular has once again emphasised that all mutual funds will have to label their schemes. The blue colour will indicate that the principal is at low risk, yellow that the principal is at medium risk and brown will mean that it is at high risk. The colour codes will also be described in text beside the colour code box. Mutual fund houses will have to give a disclaimer that investors should consult their financial advisers if they are not clear about the suitability of the product. The label will have to be disclosed in the front page of initial offering application forms, key information memorandum and scheme information documents.
In case of open-ended and closed-ended schemes of a new fund offer (NFO), the subscription will be open for up to 15 days from 30 days in case of open-ended schemes and 45 days for close ended scheme. The NFO period in case of ELSS schemes will, however, continue to be governed by guidelines issued by the government, where the maximum period of an initial offering of an MF scheme eligible under the Rajiv Gandhi Equity Savings Scheme (RGESS) will be 30 days. The fund houses will make investment out of the NFO proceeds only on or after the closure of the NFO period and allot units or refund money and dispatch statements of accounts within five business days from the closure of the NFO. All the schemes (except ELSS and RGESS) will be available for ongoing repurchase/sale/trading within five business days of allotment. For funds under RGESS, the period within which AMCs will have to allocate the units or refund the money and issue statements of accounts will be 15 days from the closure of the initial subscription.
The Sebi circular also says that for conversion of closed-ended schemes to open-ended schemes, the disclosures contained in the scheme information document (SID) will be revised and updated and a copy of the draft SID filed with the board as required under Regulation 28(1) of the Mutual Funds Regulations. Also, a draft of the communication to be sent to unitholders will be submitted to the board of the AMC, which will include the the latest portfolio of the schemes in the prescribed format and details of the financial performance of the schemes since inception, along with comparisons with appropriate benchmark.
Analysts say the master circular will bring in more clarity in the way of functioning of AMCs and benefit retail investors in the long run. Fund houses will have to adhere to the latest guidelines and give adequate disclosures so that retail investors have full understanding of the products before investing in MFs, says Deepak Goyal, an independent financial advisor.
In case of any consolidation or merger of MF schemes, it will be treated as a change in the fundamental attributes of the related schemes and fund houses will be required to comply with the regulations. Moreover, to ensure that all important disclosures are made to the investors of the schemes sought to be consolidated or merged and their interests are protected, fund houses will first have to take approval by the board of the AMC and the the trustee and ensure that the interest of unitholders under all the concerned schemes have been protected.
The letter to the unitholders from the fund houses will give them the option to exit at prevailing NAV without charging exit load and will have to disclose all relevant information enabling them to take well-informed decisions.