The Securities and Exchange Board of India (SEBI) has made a major regulatory update that would bring about more transparency and help investors make the right decisions. The mutual fund companies are now required to provide the Information Ratio (IR) for equity-oriented schemes on a daily basis. This mandate is expected to give a better idea of the risk-adjusted returns (RAR) of mutual funds.
Information Ratio is perhaps the best-known metric in the financial world. It measures how a portfolio manager can generate excess returns over a benchmark but does so relative to the amount of risk taken to produce those returns. Including volatility, the IR then enables investors to know better about the consistency with which a scheme can perform and the overall ability of the fund manager.
SEBI’s latest circular underscores that the daily disclosure of IR will make the mutual fund industry more transparent. The data disclosed will be available on both the websites of the respective mutual fund and the Association of Mutual Funds in India (AMFI) platform in a machine-readable and easily downloadable format, so that the investor can access standardized data for comparing mutual fund schemes.
SEBI has advised mutual fund houses to make investors more aware through the message about the significance of risk-adjusted returns and information on how to read the Information Ratio. This is to be communicated through digital as well as mass media to have a wider outreach.
This regulation is effective three months from the date of issuance. The regulation speaks for SEBI’s further commitment to investor protection and transparency in the securities market. While ensuring a level playing field in the mutual fund industry, it tries to build a better understanding and trust among investors by mandating the disclosure of IR.
Disclaimer: The information provided is for educational purposes only and does not constitute financial advice. We are not registered financial advisors. Please conduct your own research and consult a qualified advisor before making investment decisions. Any investment decisions you make based on this information are solely at your own risk.
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Published on: January 18, 2025 at 10.03 PM GMT.
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