On June 28, Sebi proposed that mutual funds should show risk-adjusted returns in the form of information ratio (IR) to help investors see performance more clearly.
Mutual fund (MF) industry participants think IR is too complex and might confuse regular investors instead of helping them.
Studies show IR can sometimes better indicate risk than just looking at returns. For example, some funds rank higher in IR than returns.
IR measures how consistently a fund beats its benchmark, giving a clearer picture of its performance and risk taken.
IR is calculated by dividing a fund’s extra returns by the risk taken (active return/volatility). It shows performance steadiness.
If approved, funds must show IR daily, helping investors make better choices with clearer, risk-adjusted information. This move aims to improve transparency.