3 SEBI’s Mutual Fund Rules To Be Implemented From January 2021

3 Mutual Funds Rules From SEBI To Be Implemented From January 2021

Highlights:

  • SEBI announces slew measures for Mutual Funds
  • The new rules will be applicable from January 2021
  • These rules will make Mutual Funds more investor-friendly as well as transparent

The Securities Exchange Board of India (SEBI), has recently announced a slew of measures for the mutual funds industry. The market regulator will be modifying certain mutual funds rules which will make them much more transparent and investor friendly.

SEBI also issued norms which will make debt funds safer after the whole episode of Franklin Templeton debt scheme uncover.

The Mutual funds have been provided sufficient time to comply with the new rules as these rules will come in effect from January 2021.

Let us take a look at the changes in mutual funds which will be implemented from January 2021.

New Riskometer tool

SEBI has introduced a detailed set of guidelines for determining the place of a mutual fund on its riskometer tool. The new system will introduce a fresh category of “very high” risk and will replace the old model based simply on a scheme’s category without adequately considering its actual portfolio.

This circular will be effective from the 1st of January 2021. The Risk-o-Meter shall be evaluated on a monthly basis and the AMCs (Asset Management Companies) shall disclose the Risk-o-Meter along with portfolio disclosure for all their schemes on their website and AMFI website in under 10 days from the close of each month.

The Mutual Funds also have to publish a history of riskometer changes every year. Any change in the risk-o-meter shall be communicated to unitholders of that particular scheme.

Change in NAV calculation

From the 1st days of 2021, the investors will also get the purchase NAV (Net Asset Value) of the day when investor’s money reach AMC, irrespective of the size of the investments. The SEBI circular said, “It has been decided that in respect of the 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,”.

The new NAV rules, however, will not be applicable to liquid and overnight funds.

Going by the current rules, the NAV of the same day is considered for purchases of less than ₹2 lakh, even if the money does not reach the Asset Management Company, however, the order is placed within the cut-off time.

Portfolio allocation rules for multi cap equity mutual funds

The market regulator has also tweaked the portfolio allocation rules for the multi cap equity mutual fund schemes. As per the new rules, the multi cap mutual funds will have to invest at least 75 % in equities. Currently, the minimum equity allocation must be 65%. Additionally, going forward, these schemes will also have to invest at least 25% each in the large cap, mid cap and also the small cap stocks.

As of now, there is no such allocation restriction and the fund managers can invest across the market cap as per their own choice.

SEBI has provided time until 31st of January 2021 to the mutual fund houses to comply with this latest rules, within one month of Amfi releasing the next list of large cap, mid cap and small cap stocks.

Labelling norms of “dividend option”

SEBI has also introduced the labelling norms for the dividend options of the mutual funds which will come into effect from the 1st of April 2021. Under these new norms, the mutual funds will have to rename the dividend options as income distribution cum capital withdrawal effective from the 1st of April 2021.

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