Listen to this article
Two important mutual fund regulations are coming into effect from April 1, 2022. The two regulations — dual benchmark system for equity and debt schemes and the new risk management framework — were supposed to come into effect from January 1, 2022 but were postponed by SEBI to April 1, 2022 on request from AMFI.
Given the extended time provided by SEBI, most AMCs have already made the changes.
Here's how the two regulations will change how mutual funds work.
Risk Management Framework
The risk management framework for AMCs, which was place since 2002, was revised by SEBI in September 2021 and is set to come into effect on April 1, 2022.
Here are the key highlights:
- Risk management has to be an independent function of AMCs. For each risk area like investment, compliance, operations and cyber security, the AMC will have to appoint a dedicated CXO-level risk officer, i.e. a Chief Risk Officer (CRO), who will be responsible for the overall risk management.
- In the circular, the regulator has listed responsibilities for the Board, Trustees and top officials. There's also a complete guideline in the circular to manage each type of risk — investment, credit, liquidity, governance, operational, compliance, among others.
- From the view of distributors, the important aspect is SEBI's direction to AMCs to introduce approved methodology to arrive at MFD commission. Click here for details on all the elements in the framework related to MFDs.
Uniformity in benchmark
From April 1, mutual funds have to adopt the benchmark prescribed by AMFI for each of their schemes. Additionally, they can choose to have one more benchmark to represent the investment style.
AMFI has already released a list of benchmarks that mutual funds have to choose from. You can see the list here.
