Sebi, AMFI want more transparency in MF offer documents

Market regulator Sebi is in a clean-up mode! A few days ago, it was the IPO refund system and now it is time for mutual funds. Sebi and Association of Mutual Funds of India, or AMFI, are working together to enhance transparency of new mutual funds by simplifying their offer documents.

If you think it is tiring to read a 40-50 paged offer document every time you invest in a new mutual fund, help may be coming your way in just a month's time. Market regulator Sebi and AMFI are working hand-in-hand to simplify and standardize offer documents of mutual funds.

Most importantly, you may now have risk factors specific to individual funds depending on the investment strategy, objective and asset allocation, rather than a common set of risk factors given by all funds presently.

“To expect the investor to read 40-50 pages is not a workable thing. We are targeting households to come in, we are going to Tier-II and Tier III cities and the language in which you want to communicate should be simple, straight and meaningful. American funds have plain English rather than legalistic. We want to bring that plain English in our offer documents,” said AP Kurian, Chairman, AMFI.

Fund houses may now have to give detailed information on the investment strategy and objective of the fund as well.

“One can simply say that the investment object is to invest in such a way as to enhance returns over a longer period of time. This is a very generic statement. But can we look at it a little more specifically related to that scheme? They can go around and say we will be investing in this type of industry or we will look at this type of factors which will contribute to the enhancement of the value," added Kurian.

Many a times when you make an ill-informed investment, it may have a clause hidden in that pool of words and jargon that you may have overlooked. This is perhaps a step towards making the consumer responsible and more informed about their investment, especially for a product like mutual funds, where your returns are not assured.

By Pooja Meswani, CNBC-TV18

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