The Indian mutual fund industry along with the US received 'top grade' rating in disclosures thanks to their robust disclosure practices in areas such as expense ratios, fund manager information and performance track record etc, according to a recent study. The country, however, needs to be more transparent in terms of performance commentary and material risks in the specific funds.
The study was part of Morningstar's biannual Global Investor Experience (GIE) report on Disclosure. In its sixth edition, the report graded the experiences of mutual fund investors in 26 countries across North America, Europe, Asia, and Africa.
"India and the US took the top spots this year, after also getting top grades in our fifth edition. These countries earned their top grades through robust disclosure across our six key disclosure dimensions. These markets feature global best practices for the disclosure of portfolio manager names, fund ownership, and compensation. India has set a high standard with monthly required portfolio holdings disclosure," says the report.
The six disclosure dimensions include simplified and non-simplified prospectus, fee disclosure, portfolio holdings disclosure, portfolio manager name and compensation disclosure, sales disclosure, ESG and stewardship disclosure.
Specifically, in case of India, the report notes that the country earned a 'top grade' given the strength of its requirements for monthly portfolio holdings disclosure, portfolio management disclosure, and specifications for the simplified prospectus.
However, it adds that India should work to improve the level of detail provided by fund firms in discussions of performance and risk within fund literature. "Performance commentary if available in fund documents in Key Information Memorandum (KIM) and factsheets is typically generic; more granular detailed performance commentary on specific funds would be useful for investors," says Kaustubh Belapurkar, Director - Manager Research, Morningstar India to Business Today.
"Fund documents like the KIM typically cover all possible risks on funds. Each type of fund will have certain types of risk that are more material than others. It would be useful for investors for the fund documents to highlight the specific material risks applicable to each fund," he elaborates.
Key highlights for India:
Since the inception of the GIE study, the US has consistently led the pack on disclosure, while India has incrementally added global best practices to its disclosure framework.
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