SEBI to regulate MF rankings agencies

In a bid to promote transparency, market regulator SEBI is likely to introduce regulations on the operations of mutual fund companies such as Value Research, and Morning Star. 

In the proposed plan, SEBI has suggested that the mutual fund ranking agencies must be registered as a research analyst with the regulator to continue their operations legitimately.

SEBI mentioned in a consultation paper that as the ranking of mutual fund schemes form the basis of investment decisions, the ranking of MF schemes must be brought under the regulatory watch of SEBI (Research Analyst) Regulations 2014.

In addition, the ranking agencies will have to incorporate a well-defined methodology for the rankings, whereas these agencies will be allowed to rank performance on a quantitative performance basis.

The ranking agencies will also have to disclose the criteria of their ranking, the name of categories, the total number of funds evaluated in the categories and the data used to compile the ranking.

The plan also suggested that the agencies will have to disclose the holdings of promoters and directors in the various schemes. In case an agency decides not to rank a particular mutual fund, the agencies will have to state its reason for the non-inclusion. The agencies will be expected to act independently and not get influenced by AMCs.

All the rankings will also be coming with the disclaimer of ‘the past performance is no guarantee of future returns’ and ‘Mutual fund investments are subject to market risks, read all scheme related documents carefully.’