Sebi, the market authority, has implemented several new regulations to make investors’ mutual funds more open and secure. Even though some of the new regulations will become valid as of 1 January 2021, others will become effective in 2021. Below is the summary of five new rules which will be in force in 2021.
- Enhanced riskometer tool: Product labelling in mutual fund schemes has so far defined the only risk at the group level. Debt and equity classification assets were simply allocated risk on the basis of the perceived risk of the segment to which they referred. That being said, the possibility of particular schemes within a specific category is distinct, which was not covered by the earlier classification. But Sebi’s updated standards require that fund houses independently evaluate and mark risks in different schemes. In a fund portfolio, the riskometer can now record intrinsic risks in depth. From 1 January onwards, all schemes will be identified separately for risk and fund houses are expected to notify investors on an ongoing basis of changes in the risk level of the scheme.
2. Portfolio allocation guidelines for mutual fund schemes with multi-cap equity: Sebi rendered some amendments to the portfolio allocation guidelines for multi-cap equity mutual funds in September. A multi-cap mutual fund scheme will have to spend at least 75 per cent in equities as opposed to 65 per cent now, as per the updated regulations. In addition, these schemes will each have to spend at least 25% in large, mid, and small-cap stocks. There are actually no such distribution limits within the classification of multi-cap assets. Fund houses were granted an obligation to cope with this law by 31 January 2021, within one month of the date of publication of the next AMFI list of stocks. Nevertheless, after complaints from the MF industry, the market regulator later launched a new form of mutual fund named the flexi cap fund. Without any contribution limitations under the category, these funds shall spend at least 65 percent of the corporation in equity. To prevent portfolio adjustments, some of the AMCs have already recategorized their equity multi-cap schemes as the flexi cap classification.
3. Adjustments in NAV calculation: As of January 1, mutual fund holders will get the NAV purchase on the day their capital hits the AMC, regardless of the amount of the deposits. All schemes, excluding liquid and overnight funds, will be subject to this NAV regulation. In September, this rule was revealed. Under current rules, for deposits of less than Rs 2 lakh, the NAV of the date of acquisition is accepted, even though the money does not hit the asset management company (AMC), so that the purchase order is put within the cut-off period.
4. New timeframe for inter-scheme transfer (IST): Inter-scheme transfer (IST) of debt records in close-ended funds will be carried out from 1 January 2021 onwards within 3 business days of the allocation of units of the scheme to holders. Such a transition will not be approved after three business days. Under existing laws, Sebi only specifies that certain ISTs be carried out at market rates and that the transition should be in line with the receiver scheme’s investment strategy. Sebi also specified that no ISTs would be tolerated if there were any negative market coverage or reports of sparse safety in the mass media, or if an internal risk assessment of the fund has issued a security warning in the preceding 4 months.
5. An alternative for renaming of dividend: The dividend alternatives of mutual fund schemes will be classified as income distribution cum capital withdrawal options with effect from April 1, 2021.
