SEBI formulates MF disclosure norms

MUMBAI, Feb 10: The Securities and Exchange Board of India (Sebi) has finally come out with a draft of the minimum disclosure requirements t...

MUMBAI, Feb 10: The Securities and Exchange Board of India (Sebi) has finally come out with a draft of the minimum disclosure requirements to be contained in the offer document of any scheme to be launched by a mutual fund.

The draft which was prepared in consultation with the Association of Mutual Funds in India and Price Waterhouse under the FIRE project was aimed at providing material information about mutual fund schemes which would assist the investor in making an informed investment decision.

Among the exhaustive details being sought to be disclosed by Sebi are: the due diligence certificate submitted by the AMC to Sebi, standard risk factors as well as those specific to the scheme on account of its features, details of performance of fund in past assured return schemes and nature of guarantee, disclosure of percentage of illiquid assets in open ended schemes, fundamental attributes of the scheme, expenses, names and experience of fund managers and financial performance of sponsor for the last threeyears, associate transactions undertaken in last three years, penalties awarded by any regulatory body and pending litigation under the Sebi Act and yearwise disclosure of past performance of schemes .

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Further, as investors do not generally receive the detailed offer document, an abridged offer document which should be circulated along with the application form for the scheme, has been formulated.

In case of assured return schemes, the offer document should disclose how many schemes have assured returns, their number and corpus size, a justification as to how the networth and liquidity position of the guarantor would be adequate to meet the shortfall in these schemes, details of the schemes which did not pay assured returns in the past and how the shortfall was met. The financial information disclosed should include details like the NAV at the beginning and end of the year,dividends, annualised return, key ratios like ratio of expenses to average assets and portfolio turnover rate. Transactions withassociates should be disclosed along with the manner in which such transactions affected the performance of schemes of the mutual fund.

A brief description of the basis and the manner of determination of redemption and repurchase price of the units in terms of the regulations should be given. Moreover, a disclosure of the percentage of illiquid assets for an open ended scheme if such assets are expected to be greater than 10 per cent of the value of the net assets of the scheme, should be made. The document will disclose the borrowing policy of the fund, the expected sources of borrowing, likely rate of interest and possible collateral used if any. The potential risk of loss presented to the AMC and its unit holders by these transactions should also be addressed.