SEBI To Regulate Mutual Fund Rankings

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Realizing the significance of the ranking activity of the mutual fund schemes by the ranking agencies and issuing them to public in a research report, which forms the deciding criterion of the investment for many people, Securities and Exchange Board of India has proposed that this activity of ranking of Mutual Fund schemes would be now regulated by SEBI (Research Analyst) Regulations 2014.

The legal news says that there has been a reason for bringing the ranking agencies under the ambit of Sebi board. This move of introducing regulations on the operations of mutual fund is directed at bringing more transparency between the mutual fund ranking giants like Value Research, Morningstar, and others. According to the consultation paper, these ranking agencies will now have to register with the market regulator as research analyst under SEBI to have their operations continued legitimately.

As a part of other set of rules, the ranking agencies will have to integrate a clearly defined and well-laid methodology for doing the rankings. Now onwards, the companies will have to take care that they must do the rankings on the basis of the performance of mutual fund schemes on the parameter of quantitative performance measurements. The ranking companies are also expected to reveal the important details like criteria, name of category, number of funds evaluated in a certain category, and also the data used to compile for doing the ranking of different mutual funds schemes. Also, these revelations should not be found confusing or difficult to understand. It is a must that all the investors should be able to easily understand these disclosures. Along with this, as the new rule by SEBI has suggested, the ranking agencies will also have to disclose how much is the holding of the promoters and directors in a particular scheme.

The share market news also has a rule for those companies who do not want to rate a particular mutual fund scheme. In case any ranking agency prefers to not rate a certain mutual fund scheme, as per the new rule, it is required that they must reveal a sensible reason for the same. Board has made it clear that all the non-inclusions must come with justified reasons. Another important thing to note is, these companies should be operational independently and without an interference and influence of AMCs or the Asset management companies. In other words, such companies must not admit any contemplation to rank any mutual funds schemes.

The ranking must also put a disclaimer stating clearly that, “the past performance is no guarantee of future returns” along with the prevalent and usual disclaimer which the companies have been using previously that “Mutual fund investments are subject to market risks, read all scheme related documents carefully.”

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