**Executive Summary:**
This circular, issued by SEBI on January 17, 2025, mandates the disclosure of the Information Ratio (IR) for equity-oriented mutual fund schemes to enhance transparency and aid investor decision-making. AMCs must disclose the IR on their websites daily, and AMFI will provide this data in a comparable, downloadable format. The provisions of this circular will come into effect within three months of its issuance.
**Key Points / Main Content:**
* **Disclosure of Information Ratio (IR)**
* Mutual Funds/AMCs must disclose the IR of equity-oriented scheme portfolios on their websites daily alongside performance disclosures.
* AMFI must ensure this disclosure is available on its website in a comparable, downloadable spreadsheet and machine-readable format.
* **Methodology for Calculation of IR**
* IR is calculated as: (Portfolio Rate of Returns less Benchmark Rate of Returns) / (Standard Deviation of Excess Return).
* The benchmark used should be the Tier 1 benchmark currently used by the equity-oriented Mutual Fund schemes.
* Volatility (Standard Deviation) should be calculated based on daily return values, using an arithmetic function.
* **Investor Awareness**
* AMCs and AMFI must educate investors about Risk Adjusted Return (RAR), IR, and their significance in scheme performance evaluation.
* A portion of the investor education budget should be allocated to leverage social/mass media channels.
* **Format for Disclosure**
* The format for IR disclosure on AMC and AMFI websites can be accessed via a specified link.
* A hyperlink to the AMFI website must be embedded in the IR column, providing a clear explanation of the IR, its calculation formula, and its interpretation with illustrations.
* AMCs must provide a hyperlink on their websites redirecting to the AMFI website for a detailed explanation of the IR.
**Impact Analysis**
* **Mutual Funds / Asset Management Companies (AMCs)**
* *Impact:* AMCs are required to calculate and disclose the IR for their equity-oriented schemes daily, adhering to the specified methodology and format. They also need to educate investors on RAR and IR.
* *Action Required:* Implement a system for daily IR calculation and disclosure, update website disclosures, allocate resources for investor education, and ensure compliance with the prescribed format.
* **Association of Mutual Funds in India (AMFI)**
* *Impact:* AMFI needs to ensure that IR disclosures are available on its website in a comparable and downloadable format. It also needs to create educational content about IR and RAR for investors and provide a detailed explanation of IR on its website.
* *Action Required:* Update the AMFI website to include IR disclosures in the specified format, develop educational materials on IR and RAR, and ensure the website provides a clear explanation of the IR.
* **Investors**
* *Impact:* Investors will have access to a new metric (IR) to evaluate the risk-adjusted performance of equity-oriented mutual fund schemes, aiding in better decision-making.
* *Action Required:* Investors should familiarize themselves with the concept of IR and how to interpret it to make informed investment decisions.
* **Trustee Companies / Boards of Trustees of Mutual Funds**
* *Impact:* They need to oversee that the AMCs are fulfilling the requirements pertaining to calculation, disclosure and investor awareness of IR.
* *Action Required:* Ensure that AMCs have implemented necessary changes for IR calculation, disclosure, and investor education as required by the circular.
Key Entities Referenced
Securities and Exchange Board of India: Regulatory body for securities markets in India, referred to as SEBI.
Mutual Funds: Refers to the collective investment schemes regulated by SEBI.
Asset Management Companies: Companies that manage the funds of investors in mutual funds (AMCs).
Association of Mutual Funds in India: An association of all AMCs in India (AMFI).
SEBI Mutual Funds Regulations, 1996: Regulations established by SEBI governing the operations of mutual funds in India.
Information Ratio: A financial ratio (IR) used to measure the risk-adjusted return of a scheme portfolio.
Mutual Funds Advisory Committee: A committee (MFAC) that advises SEBI on matters related to mutual funds.
Securities and Exchange Board of India Act, 1992: The Act of Parliament that established SEBI and defines its powers and functions.
CIRCULAR
SEBI/HO/IMD/IMD-PoD-2/P/CIR/2025/6 January 17, 2025
To
All Mutual Funds
All Asset Management Companies (AMCs)
All Trustee Companies/ Boards of Trustees of Mutual Funds
Association of Mutual Funds in India (AMFI)
Dear Sir/Madam,
Subject: Disclosure of Risk adjusted Return - Information Ratio (IR) for Mutual Fund
Schemes.
1. The extant provisions of the SEBI (Mutual Funds) Regulations, 1996 (hereinafter referred
to as “MF Regulations”) and Master Circular specified thereunder inter alia mandate filing
of periodic information regarding schemes’ performance by AMCs. Apart from the same,
appropriate disclosures pertaining to scheme returns are also made voluntarily, in various
other documents / disclosures by AMCs.
2. In addition to the above, a need has been felt to mandate disclosure of the “Risk Adjusted
Return” (RAR), which shall represent a more holistic measure of a scheme’s performance.
3. Considering the significance of volatility of performance in determining the suitability of MF
schemes, Information Ratio (IR) is an established financial ratio to measure the RAR of
any scheme portfolio. It is often used as a measure of a portfolio manager's level of skill
and ability to generate excess returns, relative to a benchmark and also attempts to identify
the consistency of the performance by incorporating standard deviation/risk factor into the
calculation.
4. In order to bring more transparency in disclosures made by AMCs and aid better decision
making by investors, proposed disclosure of IR as a financial metric to measure the RAR
of a scheme portfolio, was placed for public consultation and deliberated in Mutual Funds
Advisory Committee (MFAC).
5. Based on the recommendation of MFAC and analysis of public feedback, the following has
been decided:
Page 1 of 3A. Disclosure of Information Ratio
5.1.1. Mutual Funds/ AMCs shall disclose IR of a scheme portfolio on their website
along with performance disclosure, on a daily basis.
5.1.2. AMFI shall ensure that such disclosure shall be available on its website in a
comparable, downloadable (spreadsheet) and machine readable format.
5.1.3. IR disclosure shall be applicable only for equity oriented schemes.
B. Methodology for calculation of IR for each category of Mutual Fund schemes
5.1.4. In order to bring uniformity across different MFs, the following shall be taken into
account for calculation of IR for Equity oriented Mutual Fund schemes.
IR shall be calculated as under:
(Portfolio Rate of Returns less Benchmark Rate of Returns) / Standard
Deviation of Excess Return
Excess Return= Portfolio Rate of Returns less Benchmark Rate of Returns
Benchmark used in the above formula shall be the Tier 1 benchmark currently
used by the equity oriented Mutual Fund schemes.
Volatility/Standard deviation shall be calculated on the basis of daily return
values.
Daily portfolio return shall be calculated using arithmetic function.
C. Awareness amongst Investors:
5.1.5. In order to ensure better understandability about IR by investors, adequate steps
shall be undertaken by AMCs and AMFI to educate investors about RAR, IR and
their significance in scheme performance evaluation. In addition, an allocation
shall be earmarked from the budget for investor education, leveraging
social/mass media channels to maximize outreach and impact.
D. Format for disclosure:
5.1.6. The format for disclosure of IR on the websites of AMCs and AMFI shall be
accessed through the following link:
https://www.sebi.gov.in/sebi_data/commondocs/jan-2025/AnnexureA_to_circular_1_p.xlsx
Page 2 of 35.1.7. In the aforesaid format, a hyperlink to the AMFI website for IR column shall be
embedded, providing clear and concise explanation on the following, in easy-to-
understand language:
5.1.7.1. Explaining IR
5.1.7.2. Formula for calculation of IR
5.1.7.3. Interpretation of IR with sufficient illustrations covering various
scenarios.
5.1.8. In order to ensure uniformity in explanation of IR across the MF industry, AMCs
shall provide a hyperlink in the aforesaid format on their websites, redirecting to
the AMFI website providing detailed explanation of the IR.
6. The provisions of this circular shall come into force with effect within three months from
issuance of this circular.
7. The circular is issued in exercise of powers conferred under Section 11(1) of Securities
and Exchange Board of India Act, 1992, read with the provisions of Regulation 58(1) &
Regulation 77 of SEBI (Mutual Funds) Regulations, 1996, to protect the interest of
investors in securities and to promote the development of, and to regulate the Securities
Market.
8. This circular is available on SEBI website at http://www.sebi.gov.in under the category
“Legal -> Circulars”
Yours faithfully,
Lakshaya Chawla
Deputy General Manager
Investment Management Department
Tel: 022 - 26449369
Email: lakshayac@sebi.gov.in
Page 3 of 3