SEBI’s New Mandate: Mutual Funds To Disclose Information Ratio Of Scheme Portfolios

In a bid to empower investors with the tools for informed decision-making, the Securities and Exchange Board of India (SEBI) has mandated the disclosure of the Information Ratio of portfolios of equity-oriented Mutual Fund schemes. This well-established financial ratio evaluates how efficiently the portfolio returns are achieved relative to the level of risk taken, offering a more comprehensive view of investment performance.

The Information Ratio disclosure will be in addition to the existing requirement of performance disclosures. Accordingly, Mutual Funds and Asset Management Companies (AMCs) are required to disclose the Information Ratio of scheme portfolios on their websites, in the format prescribed under the new circular. The circular also outlines the methodology to be followed for the calculation of IR. This move is expected to enhance transparency in AMC disclosures and assist investors in making better-informed decisions.

The above decision follows recommendations of the Mutual Fund Advisory Committee (MFAC) and public feedback received on proposals contained in the consultation paper released in June last year. This paper revealed that not all AMCs disclose the risk adjusted return for all the categories of MF schemes and highlighted the absence of a uniform methodology for the calculation of the risk adjusted return.

The new circular is set to take effect within three months from the date of its issuance.