SEBI announces new regulations to safeguard the interests of Mutual Fund investors

The Securities and Exchange Board of India (SEBI) has recently announced new regulations that aim to offer even better protection to mutual fund (MF) investors. These regulations are set to come into effect from January 1, 2022, and will bring forth some positive changes for investors.

SEBI’s new regulations primarily focus on the following areas:

1. Flexibility in schemes

SEBI has allowed more flexibility to mutual fund houses to launch index schemes and other passive funds. This move is expected to open up new investment avenues and provide investors with more options to choose from. Additionally, the market regulator has allowed passive funds to invest up to 10% of their assets in repo transactions. This could boost the returns of the passive funds and attract more investors to this sector.

2. Reduction in expenses

SEBI has mandated mutual fund houses to cap the expense ratio for closed-end funds, including interval funds, at 1.25%. This move is aimed at reducing the costs for investors and will help make closed-end funds more attractive to investors.

3. Introduction of swing pricing mechanism

SEBI has introduced a swing pricing mechanism in order to discourage large redemptions in mutual fund schemes. This mechanism allows mutual funds to adjust their net asset value (NAV) by a small amount in order to offset the costs associated with large redemptions. This could help in protecting the interests of long-term investors.

4. Revamp of valuation methodology

SEBI has put forth new guidelines that are aimed at making the valuation process of mutual fund schemes more uniform and transparent. The guidelines will require mutual funds to use the weighted average prices of securities for the purpose of calculating their NAVs. This move will increase transparency and accuracy in the valuation process.

5. Enhanced oversight on credit risk

SEBI has outlined new guidelines that aim to ensure that mutual fund houses take a more conservative approach in managing credit risk. The guidelines require mutual funds to conduct a stress test on their portfolios and ensure that their investments are in compliance with the permissible limits. Additionally, mutual fund houses will now be required to disclose their schemes’ security concentration risk.

Overall, the new regulations announced by SEBI are expected to provide significant benefits to mutual fund investors. The increased flexibility, reduction in expenses, and enhanced oversight will provide investors with more investment options, reduced costs, and greater transparency. These changes are a step in the right direction and are expected to boost investor confidence in mutual fund investments. If you’re an investor in mutual funds, then these regulations are definitely something to be excited about!