In order to bring transparency across mutual fund ranking agencies, such as Value Research and Morningstar, SEBI has proposed that such companies will now have to register with the market regulator as research analyst.
In a consultation paper, SEBI said, “Considering the activity of ranking of mutual fund schemes as research report to the public that services as a basis for their investment decision, it is proposed that the activity of ranking of MF schemes shall be brought under the regulatory ambit of SEBI (Research Analysts) Regulations 2014.”
Here are a few key proposals
- Ranking agencies will have to put in place a clearly defined methodology
- Such companies can rank the performance of mutual fund schemes based on quantitative performance measurements
- These companies will have to disclose the criteria, name of category, number of funds in the category and the data used for ranking different schemes
- Such disclosures should be present in a manner that is easily understandable by investors
- They should also disclose the holding of the promoters and directors in a scheme
- If ranking agencies choose not to rate a particular scheme, they will have to display the reason for non-inclusion prominently
- These companies should act independent of AMCs. This means, such companies cannot accept any consideration to rank mutual funds
- All rankings should be accompanied with the disclaimer that ‘the past performance is no guarantee of future returns.’ Also, it should be accompanied with the standard disclaimer that ‘Mutual fund investments are subject to market risks, read all scheme related documents carefully.’
SEBI has invited public comment before July 14, 20