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India's mutual fund industry earns 'top' grade for disclosure regime


The mutual fund industry of India and the US received “top” grade for robust disclosure practices in areas such as fees and transparency of fund holdings, according to a global study by Morningstar. However, India could work to improve the level of details provided by fund firms in discussions of performance and risk within fund literature, it added.

According to Morningstar’s biannual ‘Global Investor Experience‘ report on disclosures, India and the US received “top” grades due to their robust disclosure practices.

The two markets feature global best practices for disclosure of portfolio manager names, fund ownership and compensation.

“India earns a top grade for disclosure given the strength of its requirements for monthly portfolio holdings disclosure, portfolio management disclosure, and specifications for the simplified prospectus,” the report noted.

The report, now in its sixth edition, assessed the experiences of mutual fund investors in 26 markets across North America, Europe, Asia, and Africa.

It evaluates disclosure frameworks that mutual fund investors face, assigning top, above average, average, below average, and bottom grades to each market.

Kaustubh Belapurkar, Director Manager Research, Morningstar India said, “India sets the benchmark for global fund industry on several fronts, including monthly full portfolio disclosures, which has been further enhanced to fortnightly disclosures for fixed income funds”.

Other useful disclosures such as expense ratios, fund manager information and performance track record can easily be found in simplified documents like the key information memorandum (KIM) and factsheets, which make it easy for investors to access this information, he added.

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As per the report, Indian funds have the shortest lag in release of portfolio holdings data, making it easier for investors to have access to the latest portfolio information at the earliest.

As per Sebi norms, funds are required to disclose their portfolio holdings monthly in their fact sheets, which are typically posted on the asset manager’s website. They need to make such disclosure within 10 calendar days from each month-end.

This regulation was updated in October 2020 to mandate that fixed-income funds disclose full portfolio holdings fortnightly, within five days of each fortnight.

The report said fund managers’ commentary on performance is generally considered as a useful highlight for investors to understand the drivers of performance.

“India can improve on this front as most performance commentary is usually generic,” the report noted.

An emerging area of interest is ESG (environment, social and governance), Belapurkar said, adding that while it is still in nascent stage in India, it would be helpful to have regulations around standardized ESG disclosures to allow investors to make informed choices.

The report evaluated markets based on six key disclosure dimensions — simplified prospectus, fee, portfolio holdings, portfolio manager name and compensation, sales and ESG stewardship.

Overall, the report noted that most markets around the world have incrementally improved the environment for mutual fund investors through better disclosure practices.

The report assigned above-average grades to Canada, Korea, Taiwan, Thailand, South Africa, and Sweden; while Singapore, Switzerland, Belgium, Italy and Japan were given below-average grades.

Australia was the only country to get the bottom grade among the 26 markets.

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“As an otherwise sophisticated market, it is remarkable that Australia remains the only market with no implemented portfolio holdings disclosure regime,” the report said.





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