By Priyanka Sambhav
Market regulator Securities Exchange Board of India has announced 4 significant changes to the mutual fund industry. These changes aim to ensure that more transparency comes into the process, and an investor’s interest is safeguarded too. The mutual fund industry has to bring about these changes from January 2021. Here is a in depth details of 4 recent changes in the mutual fund industry.
1. Mutual Fund Riskometer
The existing Riskometer has five levels and now SEBI has added a new 6th risk level – ‘very high risk’. With this new addition comes SEBI’s detailed guidelines on what will determine the risk level. There is a clear distinction of parameters of risk for equity and debt mutual fund. The risk in equity MF will be based on- market capitalization, volatility and impact cost. As far as debt funds are concerned, the risk will be assessed based on credit risk, interest rate and liquidity among others. The AMC’s have to disclose a monthly Riskometer along with their portfolio disclosure for all their schemes on their website and on AMFI website. Any change in risk parameters should be communicated to the investor. A yearly riskometer record has to be published by the mutual fund companies.
2. NAV Calculation
“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. Investors will get the purchase NAV of the day when the investor’s money reach AMC.As per the old rule, the NAV of the same day is considered only when the amount does not exceed Rs. 2 lakh.
3. New rules for Multi-cap Equity MF
Multi-Cap Equity funds will have to invest 75% in equities now which at present is 65%. Also these schemes will have to invest at least 25%in large-cap, mid-cap and small-cap stocks. Currently, there was no such restriction on the kind of allocation a multi-cap fund had but not any more. They have to implement this by 31 January 2021.
4. The word ‘Dividend’ will be removed
From 1st April 2021, mutual funds dividend will be renamed and called income distribution cum capital withdrawal- because the dividend offered in a mutual fund scheme is not a part of the company’s profit but a certain portion of investors capital is distributed. This renaming removes the ambiguity from the term dividend and clearly informs the investor that the dividend that she/he receives is different from a dividend that one receives from an equity share.
