There have been many regulatory changes in the mutual funds industry. The Securities and Exchange Board of India (Sebi) has time and again brought in new rules to keep the system fair, safe and transparent for the end-user, the investors. Sebi introduced a few changes last year for mutual funds that will be applicable from 2021. 

Read on to find out more on these changes!

Change in riskometer – January 1, 2021

The Securities and Exchange Board of India (Sebi) has introduced detailed guidelines for determining a mutual fund’s place on its riskometer tool. This is effective from January 1, 2021. This replaces the old system wherein the risk is considered without adequately assessing the actual portfolio.

Mutual funds will also be required to update the riskometer every month on their website and AMFI’s website, 10 days before the end of the month. In case there is a change, investors need to be duly informed.

In the new riskometer, a new category -‘very high’ risk, has been introduced. Under the new riskometer, there are six categories of risk, going from low to very high. 

Labelling norms for dividend options- April 1, 2021

Sebi introduced labelling norms for the dividend options of mutual funds which will come into effect from 1st April 2021. Under the new norms, mutual funds will have to rename dividend options as income distribution cum capital withdrawal.

Currently, the dividend options available are:

Dividend payout: Where the dividend is credited to our accounts

Dividend reinvestment: Where the dividend paid out is reinvested into the plan.

Dividend transfer plan: Where the dividend earned will be automatically reinvested into another scheme. Only certain fund houses have this facility.

While the nature of these options remains the same, they are being renamed, effective April 1, 2021.

Here’s a quick summary of the new names.

Option/Plan Name
Dividend Payout Payout of Income  Distribution cum capital withdrawal option
Dividend Reinvestment Reinvestment of Income Distribution cum capital withdrawal option
Dividend Transfer Plan Transfer of Income Distribution cum capital withdrawal option

Changes in Multi-Cap Allocation

Sebi made changes to the asset allocation rules for multi-cap funds in a circular released in September 2020. The changes as detailed below, are effective January 1, 2021:

Change 1: 

Multi-cap funds will now be required to invest a minimum of 75% of their total assets in equity and equity-related instruments. Earlier, the requirement was 65%.

Change 2: 

Until 2020, there were no specific rules regarding how the fund manager of a multi-cap fund allocates the money invested. Now, Sebi has laid down clear guidelines, which are as follows:

Of all the equity investments, 

  • A minimum of 25% invested in large-cap stocks
  • A minimum of 25% invested in mid-cap stocks
  • A minimum of 25% invested in small-cap stocks

NAV Applicability

In a circular released in September 2020, Sebi said that you would get the same day’s NAV only if your money reaches the fund house on the same day on purchasing or redeeming units from your mutual fund scheme.

Until implementing this circular, mutual fund investments get the same-day NAV as long as the investment value was less than Rs 2 lakh and the investment complied with the NAV cut-off timing.

This is applicable from February 1, 2021. 

Read more on Groww:  Mutual Fund Buying Rules Changed – Same Day NAV Applicable