Mutual funds in India

Mutual Fund Product offerings are regulated by SEBI

The Securities and Exchange Board of India (Sebi) has introduced detailed guidelines for determining the place of a mutual fund on its riskometer tool. The new system introduces a fresh category of 'very high' risk. It replaces the old model based simply on a scheme's category without adequately considering its actual portfolio. The circular goes into effect on 1st Jan 2021. Mutual Funds have to update the riskometer on a monthly basis on their websites and the AMFI website, within 10 days from the end of the month. In case of a change in riskometer position, they have to send out communications to investors. Mutual Funds also have to publish a history of riskometer changes every year.

Under the new riskometer, there are six categories of risk, going from low to very high. Debt schemes with lower rated credit or higher maturity papers will be determined as more risky. For equity schemes higher risk weights will be given to small and mid cap stocks (meaning a riskier place on the riskometer tool). The new Sebi circular also introduces a liquidity parameter for both equity and debt schemes, assigning higher weights to schemes investing in relatively illiquid securities. "Many key changes have been introduced. Now investors will be able to distinguish between the risk of funds within a category. The monthly publishing also makes it a dynamic tool. An additional risk category called very high has also been introduced. All these changes are welcome," said Swarup Mohanty, CEO, Mirae Asset Mutual Fund.

Sebi issued a mutual fund circular to change the NAV rules. From January 1,2021, investors will get the purchase NAV of the day when investor's money reach AMC. "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.