CONSTRUCTIVE REFORMS

A slew of measures were announced by SEBI recently to help improve the mutual fund industry

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The last board meeting of the Securities and Exchange Board of India (SEBI) in March this year was indeed an important one from the standpoint of the mutual fund industry. The market regulator had announced a range of measures, from allowing new players to enter the mutual fund industry to setting up a fund house with a sponsor.

All these steps will go a long way in improving investor confidence in mutual funds. In this article, we explain key announcements made by the regulator for mutual funds and their impact on investors.

NEW ESG FRAMEWORK

In the last three years, Indian fund houses have launched thematic funds based on environmental, social, and governance (ESG). However, the concept of ESG investments and standardized disclosures for ESG funds is still evolving.

There is an urgent need for consistent and useful scheme disclosures that can enable people to make informed decisions and prevent greenwashing.

SEBI has announced various measures to address the risks of greenwashing and enhance stewardship reporting requirements. Greenwashing is a tactic used by companies to deceive customers into believing that their products and services are environmentally friendly.

The regulator has now mandated ESG schemes to invest at least 65% of their assets in entities for which business responsibility and sustainability reports (BRSR) have been compiled. It has also said that there should be enhanced disclosures on voting decisions with a specific focus on ESG factors. Furthermore, the regulator has introduced a new scheme category that will enable the launch of multiple schemes based on ESG-related factors.