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4 new mutual fund rules to come into effect in 2021

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4 new mutual fund rules to come into effect in 2021

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Market regulator Securities and Exchange Board of India (SEBI) has introduced some new rules in order to make mutual funds more transparent for investors.

4 new mutual fund rules to come into effect in 2021
Market regulator Securities and Exchange Board of India (SEBI) has introduced some new rules in order to make mutual funds more transparent for investors. These new rules will become effective from 2021.
Here's a list of new mutual fund rules that will become effective from 2021:
New rule on the portfolio mix of multicap funds
Market regulator SEBI in September modified the asset allocation rules for multicap mutual fund schemes, which invest in shares of large cap, midcap and small cap companies.
It has told multicap funds that a minimum of 75 percent of their corpus should be invested in equity and equity-linked instruments, with effect from February 2021. Currently, multicap funds are required to invest a minimum of 65 percent of their corpus in equity and equity-linked instruments.
From February, fund managers will also have to ensure that they invest a  minimum of 25 percent of the corpus in each of the three categories of stocks that are part of a multicap fund—large caps, midcaps, and small caps. There is no such restriction at present.
Change in NAV calculation
According to the new rules, from January 1, investors will purchase NAV of the day when investor’s money reach AMC, irrespective of the size of the investments.
With respect of the purchase of units of mutual fund schemes (except liquid and overnight schemes), closing NAV of the day shall be applicable on which the funds are available for utilization irrespective of the size and time of receipt of such application.
Inter-scheme transfer
SEBI in October said it will restrict the use of inter-scheme transfers (ISTs) by debt mutual funds. It said inter-scheme transfers could only be done after other avenues of raising liquidity are attempted and exhausted by a fund house. This would take effect from January 2021.
Under existing rules, inter-scheme transfers occur at market prices and take place in conformity with an investment objective of the receiving scheme.
Labeling norms of dividend option
SEBI has asked the fund houses to use the nomenclature 'income distribution cum capital withdrawal’ instead of the word dividend while specifying the plans of the schemes. Hence mutual funds’ dividend payout schemes will be renamed ‘Payout of Income Distribution cum capital withdrawal option.’ Similarly, dividend reinvestment and dividend transfer plans will be renamed.
These changes will be implemented by April 1, 2021.
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