6.3 Non-Mandatory Disclosures

The Distinction

Mandatory disclosures are those SEBI requires: daily NAV and daily total expense ratio, the monthly portfolio within 10 calendar days of month end, an additional fortnightly portfolio for debt schemes within 5 calendar days, half-yearly results, the annual report, the risk-o-meter by the 10th calendar day of each month, scheme performance in prescribed formats, and voting disclosures.

Non-mandatory disclosures are what an AMC chooses to publish in addition. They are voluntary in existence but not voluntary in standard: once published, they must be accurate, consistent with the scheme documents and compliant with the advertisement code. An inaccurate fact sheet is a compliance problem even though the fact sheet itself was optional.

The Monthly Fact Sheet

The monthly fact sheet is the principal voluntary disclosure and the single most useful document for comparing schemes. A typical fact sheet page carries:

What to Actually Read

A distributor comparing two schemes gets more from four fields than from the rest of the document combined.

Portfolio turnover indicates how actively the manager trades. A turnover of 0.5 implies roughly half the portfolio changed over the year; a turnover above 2 indicates very high activity. High turnover means higher transaction costs borne by the scheme, so it should be paired with evidence that the activity earns its cost.

Yield to maturity on a debt scheme is a statement about credit risk and duration, not a forecast of return. A debt scheme showing a YTM materially above its peers is taking more credit risk, more duration risk, or both, and the rating profile in the same fact sheet will usually show which.

Rating profile for debt schemes shows the split across sovereign, AAA, AA, A and below. Two "corporate bond funds" with very different rating profiles are not comparable products.

Market-capitalisation split for equity schemes reveals whether a flexi cap fund is effectively a large cap fund or is running substantial mid and small cap exposure — a difference the category name conceals entirely.

Other Voluntary Disclosures

• More frequent portfolio disclosure than the monthly requirement
• Rolling returns rather than only point-to-point trailing returns, which give a far more honest picture of consistency
• Investment philosophy notes explaining the process a manager follows
• Scheme-level stress testing and liquidity disclosures, some of which have since become mandatory for mid and small cap schemes
• Investor education content on the AMC website
• Stewardship and engagement reports describing how the AMC engaged with investee companies

Limits on Voluntary Material

Three cautions the syllabus expects a distributor to hold.

Fund manager commentary is opinion. It explains positioning and it is useful context, but it carries no regulatory status and should never be presented to an investor as a forecast.

Voluntary presentation can flatter. Because the format is unregulated, a scheme may highlight the metric on which it looks strongest. If one fact sheet shows three-year returns and another shows since-inception, the two are not being compared.

Consistency with mandatory disclosure is required. A fact sheet cannot show performance in a manner the advertisement code would prohibit merely because the fact sheet is voluntary. Selective periods, missing benchmark comparison and absent cautions are breaches wherever they appear.

Using Disclosure Well

The practical discipline is to build comparisons from mandatory disclosures — portfolio, performance against benchmark, expense ratio, risk-o-meter — and use voluntary disclosures such as ratios and commentary to explain what the mandatory data shows. Doing it the other way round means comparing whichever numbers each AMC chose to feature, which is not a comparison at all.

Rolling Returns: The Most Useful Voluntary Disclosure

Of everything an AMC publishes voluntarily, rolling returns carry the most information, and understanding why is worth the paragraph.

A trailing return is a single observation. A stated three-year return of 16% means the return from one particular start date to one particular end date. Move the start date by three months and the figure can change substantially, because it is dominated by where the market happened to be on those two days.

A rolling return takes every possible start date over a long period and computes the return for a fixed holding period from each of them, then reports the distribution.

Illustration. Two schemes each show a five-year trailing return of 15%.

The averages are identical and the experiences are not remotely comparable. An investor entering Scheme S at the wrong moment had a materially different outcome from one entering it at the right moment; an investor in Scheme R had broadly the same outcome whenever they started. Consistency is invisible in a trailing return and unmistakable in a rolling one, which is precisely why the disclosure is optional rather than mandatory.

Two Habits Worth Forming

Compare the same fields. Before comparing two fact sheets, confirm they are as of the same month-end and that the return periods, benchmark and expense figures are stated on the same basis. Fact sheet formats are not standardised, and month-end dates occasionally differ.

Treat the fact sheet as the start of the enquiry. Where the fact sheet raises a question — a jump in turnover, a YTM well above peers, a capitalisation split at odds with the category — the answer is in the monthly portfolio disclosure, which is mandatory and complete. The fact sheet points; the portfolio proves.