Sebi for mandatory disclosure of risk-adjusted return by MFs
Sebi) on Friday proposed that mutual funds should disclose risk adjusted return of their schemes to help investors take informed investment decision.
"… it is felt that the risk adjusted return (RAR) of a scheme portfolio represents a more holistic measure of the scheme's performance because it quantifies the amount of return generated by a mutual fund scheme for each unit of risk taken to achieve that return," Sebi said in a discussion paper.
The current regulatory framework does not mandate disclosure of RAR along with the returns of a mutual fund scheme.
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Further, there is no uniform practice followed by asset management companies regarding disclosure of RAR of their schemes, the regulator said.
«Considering the significance of volatility of performance in determining the suitability of MF schemes, it is desirable that the RAR of the scheme is disclosed along with disclosure of its scheme performance,» Sebi said.
Information Ratio (IR) is an established financial ratio to measure the RAR of the scheme portfolio. It is often used as a measure of a portfolio manager's level of skill and ability to generate excess returns relative to a benchmark and it also attempts to identify the consistency of the performance by incorporating a tracking error into the calculation, the regulator said.
At present, disclosures on scheme returns to investors are made in various documents including factsheets, investor account
