MUMBAI: SEBI’s recent mandate for mutual fund (MF) companies to disclose expenses, returns, and annualised yields separately for both direct and regular plans aims to empower investors with clearer insights and protect them from potential disadvantages.
The Association of Mutual Funds in India (AMFI) will standardise these formats with Sebi.
The new rules seek to improve transparency and comparability between the two types of plans, reducing the likelihood of investors making uninformed decisions due to unclear or blended expense and performance data.
Key investor risks
Previously, investors often lacked clear visibility on how expenses and returns differ between direct and regular plans.
This could result in unanticipated expenses and diluted returns – especially as regular plans, which involve distributors, typically come with higher costs than direct plans, which are purchased directly from the fund.
The lack of distinct performance data also made it harder for investors to understand the cost impact of these fees on their returns over time.
The new SEBI rule mitigates this by mandating separate and standardised disclosures, helping investors make more informed choices.
Direct v/s regular
Available for direct purchase from the mutual fund company, these plans exclude distributor commissions. As a result, they have lower expenses and typically yield higher net returns over time, which can be beneficial for cost-conscious investors or those who prefer managing their own investments.
On the other hand, the regular plans are purchased through intermediaries, such as brokers or advisors, and include a commission for these third parties.
Although more convenient for investors who want advisory support, regular plans generally have higher expense ratios due to this added commission.
New colour-coded Risk-O-Meter
To further enhance clarity, SEBI is also implementing a colour-coded system in the existing risk-o-meter, where each risk category (from low to very high) will now be associated with a distinct colour.
This makes it easier for investors to assess a scheme’s risk level at a glance and quickly identify any risk shifts.
Any changes in a fund’s risk level will also need to be promptly communicated to investors via email or SMS, ensuring that they stay informed about potential increases or decreases in the risk of their investments.
This move by SEBI aligns with its commitment to transparency, protection, and informed decision-making in India’s mutual fund sector.
