From November 1, 2024, the Securities and Exchange Board of India (SEBI) is implementing significant changes to mutual fund (MF) regulations, especially impacting debt securities. These new regulations include a uniform valuation method, revised categories for debt securities, and new norms for mutual fund distributors. SEBI aims to improve transparency and investor protection with these updates, particularly for retail investors who rely on debt mutual funds for steady income.
Revised Valuation for Debt Securities
One major change focuses on valuation. Debt securities will now adhere to a uniform valuation system based on market prices instead of “amortization” for securities under 30 days. This shift is expected to reduce discrepancies in Net Asset Value (NAV) calculations, making NAVs more reflective of current market conditions. The transition to market-based valuations means that NAVs may be more volatile, as they will now mirror real-time price changes, especially during interest rate fluctuations.
Updated Debt Mutual Fund Categories
SEBI has also redefined categories within debt funds. Funds will now need to classify their portfolios with more transparency, affecting how investors assess risk and returns across short-term and long-term debt funds. For investors, this will require revisiting portfolio allocation based on their risk tolerance and investment horizon, as these refined categories may affect fund performance.
Changes for Distributors and Expense Ratios
Another adjustment targets mutual fund distributors, with stricter rules on disclosures regarding their fees and commissions. SEBI is also streamlining total expense ratios (TER), which dictate how much investors pay toward fund management. Lower TER limits are expected to make mutual funds more cost-effective, which could enhance returns over time, especially for long-term investors.
These updates align with SEBI’s broader strategy to encourage transparency, protect investors, and improve the structure of debt mutual funds. Existing investors may notice more variability in returns and costs, while new investors could benefit from increased transparency and standardization across the MF landscape.
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