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Summary of SEBI Circular SEBI/HO/IMD/PoD1/CIR/P/2024/150: Disclosure of Expenses, Half-Yearly Returns, Yield, and Risk-o-meter of Mutual Fund Schemes
Circular Overview: SEBI's recent circular introduces essential updates on mutual fund disclosures aimed at enhancing transparency and providing investors with clearer information about fund expenses, returns, and risk levels. This circular is significant for compliance professionals as it impacts various regulatory aspects of mutual funds.
Key Points of the Circular:
A. Disclosure of Expenses, Half-Yearly Returns, and Yield
Expense Ratio for Direct vs. Regular Plans:
- Mutual funds must provide separate disclosures for the expense ratios of direct and regular plans.
- Direct plans exclude distribution and commission costs, resulting in lower expense ratios than regular plans, affecting returns.
Half-Yearly Returns and Compounded Yield:
- Returns and yields will be disclosed separately for both direct and regular plans, in compliance with the SEBI (Mutual Funds) Regulations, 1996.
- AMFI, in consultation with SEBI, will standardize the format of these half-yearly disclosures.
Standardization Across All Disclosures:
- All required regulatory disclosures must distinctly present data for both direct and regular plans to ensure transparency for investors.
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B. Color Scheme for Risk-o-meter
- Introduction of Color-Coding:
- SEBI has enhanced the Risk-o-meter for mutual funds by adding color codes for six risk levels:
- Low Risk: Irish Green
- Low to Moderate Risk: Chartreuse
- Moderate Risk: Neon Yellow
- Moderately High Risk: Caramel
- High Risk: Dark Orange
- Very High Risk: Red
- The color scheme will be used in digital and printed materials to improve risk level visibility.
C. Disclosure of Changes in Risk-o-meter
- Notice of Risk Level Changes:
- If a scheme’s risk level changes, fund houses must communicate this to investors through a "Notice cum Addendum," as well as via email or SMS.
- The format will display both the current and revised risk levels for clarity.
Implementation Date:
- The provisions will be effective from December 5, 2024.
This circular reinforces SEBI’s commitment to protecting investors and standardizing mutual fund disclosures across the industry.
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Multiple-Choice Questions (MCQs) for NISM Exam Preparation:
What is one reason the expense ratio for direct plans is lower than regular plans?
- a) Higher distribution costs
- b) Exclusion of distribution and commission fees
- c) Higher management fees
- d) Reduced fund performance fees
- Answer: b) Exclusion of distribution and commission fees
What color represents 'Moderate Risk' in SEBI's new Risk-o-meter color scheme?
- a) Caramel
- b) Chartreuse
- c) Neon Yellow
- d) Dark Orange
- Answer: c) Neon Yellow
How will changes in the risk level of a scheme be communicated to investors?
- a) Through printed brochures
- b) Only on SEBI's website
- c) Via a Notice cum Addendum, email, or SMS
- d) During annual investor meetings
- Answer: c) Via a Notice cum Addendum, email, or SMS
What is the effective date of SEBI’s circular on mutual fund disclosure changes?
- a) November 5, 2024
- b) December 5, 2024
- c) January 1, 2024
- d) January 1, 2025
- Answer: b) December 5, 2024
Which organization will standardize the half-yearly financial statement format in consultation with SEBI?
- a) RBI
- b) AMFI
- c) NISM
- d) IRDAI
- Answer: b) AMFI
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