SEBI mandates Mutual Funds to disclose Information Ratios of Schemes
SEBI has asked mutual funds to reveal the information ratio of their schemes starting January 17, 2025, to make the job of the investor easier in terms of decision making. SEBI is striving for transparency and enhancing the value of information provided to investors so that they can take an informed decision while choosing investments.
Information Ratio is a measure that helps an investor understand how well a scheme is performing relative to the risk it involves. It is essentially the risk-adjusted return (RAR) of a scheme’s portfolio; that is, how much return a fund generates relative to the risk taken. This ratio assesses whether the fund manager can produce good returns above a benchmark while considering the risk involved.
The new rule mandates that mutual funds will only present the Information Ratio for equity-based schemes. Investors will then get an idea about how consistent the scheme’s performance is and to what extent they are exposed to risk.
Mutual fund houses will need to post their Information Ratio, along with other performance details on their website and the same has to be updated on a daily basis. To make this easily accessible and comparable, the industry body, AMFI, or Association of Mutual Funds in India, will ensure that data is available for download and is machine-readable.
In a major step, the SEBI also standardized the manner in which mutual funds calculate the information ratio for various types of mutual fund schemes to ensure uniformity across all schemes.
These will be effective three months from the date of issuing the circular for mutual funds to adapt.
The mutual fund industry shall be made more transparent and help investors make better and more informed decisions by SEBI requiring mutual funds to share Information Ratio.
