Sebi asks mutual funds to disclose expenses of direct and regular plans of a scheme separately

The Sebi circular stated that disclosure of expenses should now contain separate disclosures for total recurring expenses for direct and regular plans, apart from the disclosure of total recurring expenses of the scheme.

Mutual fund houses will now need to disclose expenses of direct and regular plans of a scheme separately.

A circular issued on Tuesday, November 5, by the Securities and Exchange Board of India (Sebi) has detailed a standardised format for mutual fund houses to declare expenses and risks associated with their schemes.

On the need for separately disclosing details of direct and regular plans, the circular said, " As distribution expenses and commission cannot be charged to investors of a direct plan, the expense ratio of direct plan of any scheme is lower than that of the regular plan of the same scheme and hence the returns of the direct and regular plans also differ."

Therefore, disclosure of expenses should now contain separate disclosures for total recurring expenses for direct and regular plans, apart from the disclosure of total recurring expenses of the scheme.

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The disclosure of returns during the half year and compounded annualised yields respectively should also be separately disclosed for direct and regular plans.

Also, risk associated with a mutual-fund scheme will now become easier to track with the new colour-coded risk-o-meter, which will capture six levels between low risk and very high risk.

The circular stated, "Based on the recommendation of MFAC (Mutual Fund Advisory Committee), it has been decided that in addition to the existing labels relating to levels of risk i.e. Low, Low to Moderate, Moderate, Moderately High, High and Very High, the Risk-o-meter shall also be depicted using a colour scheme."

(This copy will be updated.)