SEBI asks for better disclosure of mutual fund performance   

June 3, 2010

 SEBI has proposed wide-ranging changes in the way fund performance is currently presented. But it is not clear whether investors will know how to use it and whether they will

Market regulator Securities and Exchange Board of India (SEBI) has proposed a new set of quantitative measures for disclosing an equity scheme’s performance. SEBI has proposed that fund returns will be calculated and disclosed in an annualised manner by using both capital gains (change in NAV over a period of time) and the dividend paid out per unit. The returns are proposed to be compared to a popular index such as Nifty and Sensex apart from the scheme’s own chosen benchmark.

This will give a clearer picture of comparison between absolute returns of a scheme, benchmark returns and the market indices (Nifty or Sensex), especially since index funds are proving to be a better bet than many actively-managed funds. SEBI wants risk-adjusted return to be disclosed as well. The volatility of benchmarks and the schemes is also proposed to be disclosed which will provide a comparison between risk of the scheme, benchmark and the market. Funds may be asked to disclose the beta of a scheme to show the volatility of portfolio and that of the Nifty or Sensex.

Expense ratio will also be a part of disclosure as expenses have a direct bearing on the fund performance. SEBI also wants portfolio turnover ratio disclosed. A higher turnover indicates that the fund manager is churning the portfolio very often.

Reacting to the SEBI proposals, Ajit Dayal, director, Quantum Mutual Fund told Moneylife: “It’s very good that SEBI is trying to standardise performance which has become a racket in the industry where people are using performance numbers to fool investors. Unfortunately over 15 years of existence, many of the large fund houses in the industry have chosen not to bother about their investors and worry more about the assets that they can gather.” However, another CEO of an asset management company felt that while all this information is completely useful, it is impractical to expect the investors to understand them and act upon them. “This information is useful for financial planners and advisors. And they already have access to this data. To put all this sophisticated information in the public domain is simply overkill.”

“It’s great that there is more transparency from what has largely been a most unfriendly stance towards the investor industry. But it does not take away the fact that risk is different for different investors,” added Mr Dayal.—

Moneylife Digital Team