There are some important SEBI guidelines that will come into effect from 2021.

First, the riskometer gets a makeover. (It’s the semi-circle that resembles a car speedometer – you’ll find it in all mutual fund scheme related documents.) The riskometer currently has 5 risk levels:

• Low
• Low to Moderate
• Moderate
• Moderately High
• High

A sixth, Very High, will be added from January 1, 2021. And that’s not all. Currently, it describes the fund category; hence all funds therein are captured under the same risk level, even though the individual fund portfolio may vary widely.

From January 1, 2021 though, it will describe the individual fund – hence every fund will have its unique risk level.

So how does this play out in practice? The debt mutual funds which have longer duration maturity papers, or are lower credit-rated will be considered riskier. Wrt equity funds, higher risk weights will be attached to mid-cap and small-cap stocks; meaning they will be considered riskier.There is also a liquidity parameter common to both the equity and debt funds - higher risk will be assigned to the schemes holding relatively illiquid securities.

Further, the riskometer will have to be calculated every month and posted on the website of the fund. Investors need to be informed whenever the risk category changes.

So, dear investor, the riskometer in its new avatar will be a very useful tool for you – do make use of it.

Secondly, investors will get the purchase NAV of the day when investor's money reaches the AMC, irrespective of the size of the investments. Currently, for purchases of Rs 2 lakh (within the cut off time) or less, NAV of the same day is considered even if the amount is received later. All investors thus get the same treatment, irrespective of the size of purchase.

Thirdly, wef April 1, 2021 the dividend option of mutual funds will have to be renamed to Income Distribution cum Capital Withdrawal. This should make it clear(er) to investors that a part of their capital may be distributed to them.

Fourthly – and this was in the news a few weeks back - wef Jan 31, 2021 multi cap mutual funds need to be invested 75% or more in equities; the minimum equity allocation is 65% currently.

Further, the schemes will have to invest at least 25% each in large cap, mid cap and small cap stocks.  SEBI is thereby getting these funds to be ‘true to label’ i.e., align with what their name suggests.