Mutual funds now will have to disclose their credit evaluation policy for debt investments and also the list of sectors that they would avoid for investments, according to SEBI direction.

This has been done with a view to enable investors to take an informed decision based on the quality of securities and risk associated but without indicating the portfolio or yield directly or indirectly.

The market regulator has asked mutual funds and AMCs to provide additional disclosures in their scheme information document, statement of additional information and key information memorandum for close-ended debt oriented schemes.

Mutual Funds are also expected to disclose the type of instrument that they plan to invest in along with their credit rating.

MFs are also supposed to reveal the maximum and minimum percentage within which money would be deployed in any instrument having a particular credit rating — (for example 10 per cent to 15 per cent in AA rated CPs).

SEBI has directed mutual funds to comply with instructions in letter and spirit; variation between indicative portfolio allocation and final portfolio will not be permissible.

SEBI's move to provide additional information to investors is an improvement over its earlier circular dated January 19, 2009, which had directed MFs to refrain from communicating indicative portfolio and indicative yields in mutual fund schemes in any manner whatsoever.

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