SEBI Mandates Information Ratio Disclosure for Mutual Fund Schemes: New Risk-Adjusted Return Metric
SEBI's January 2025 circular makes fund houses disclose the Information Ratio, a risk-adjusted metric that shows how much excess return a scheme earned per unit of active risk.
The market regulator has quietly changed how you are meant to judge a mutual fund. On 17 January 2025, the Securities and Exchange Board of India (SEBI) issued circular SEBI/HO/IMD/IMD-PoD-2/P/CIR/2025/6, titled "Disclosure of Risk adjusted Return - Information Ratio (IR) for Mutual Fund Schemes". The instruction is short but consequential: fund houses must now publish the Information Ratio, a measure that tells you how much extra return a scheme earned for every unit of extra risk it took relative to its benchmark. For the pre-open desk this is not a price story, it is a structure story, and structure stories tend to outlast a single day's Nifty candle.
Why should a trader watching the tape at 08:00 IST care about a disclosure norm dated January 2025? Because the Information Ratio reframes the question every equity allocation ultimately asks: is my active fund manager worth the fee I pay? With the long-term capital gains tax on equity now fixed at 12.5% above a Rs 1,25,000 annual exemption, and short-term equity gains taxed at 20%, the after-tax bar for active outperformance has risen. A metric that isolates skill from luck is exactly what a fee-paying investor needs before the next systematic instalment leaves the bank account.
Market Snapshot
The "snapshot" for today is regulatory rather than a set of index levels, so treat this as a map of the disclosure landscape mutual fund investors now operate in. SEBI's 17 January 2025 circular sits on top of an existing framework in which schemes already report a benchmark, an expense ratio, and standardised returns. The Information Ratio adds a risk-adjusted lens that the raw return column never captured.
The Information Ratio is defined as a scheme's active return (its return minus its benchmark's return) divided by its tracking error (the standard deviation of that active return). A higher ratio means a fund manager delivered more excess return per unit of active risk. Unlike a simple one-year return, which can be flattered by a single lucky sector call, the ratio penalises volatility in the outperformance itself. That is why the tracking error and benchmark index concepts are now more than jargon for retail investors.
It helps to place the Information Ratio alongside the metrics investors already meet on fact sheets. Each answers a slightly different question, and none replaces the others.
| Metric | What it measures | Benchmark-relative? |
|---|---|---|
| Alpha | Excess return over benchmark, risk-adjusted | Yes |
| Sharpe Ratio | Return per unit of total risk, over the risk-free rate | No (uses risk-free rate) |
| Information Ratio | Active return per unit of tracking error | Yes |
| Expense Ratio | Annual fee as a percentage of assets | No |
For context on why the fee side of that table matters, an expense ratio of 1.5% deducts Rs 1,500 a year for every Rs 1 lakh invested, while index funds typically sit in the 0.1% to 0.3% range. The Information Ratio is the tool that tells you whether the higher fee bought genuine, repeatable skill or merely a costlier way to track the same benchmark.
What Moved Yesterday
The notable "moves" in the mutual fund structure story over recent quarters have come from the regulator, not from a single trading session, and they are worth stacking in date order. On 17 January 2025, SEBI mandated the Information Ratio disclosure through circular SEBI/HO/IMD/IMD-PoD-2/P/CIR/2025/6, pushing risk-adjusted comparison from the domain of CFA charterholders into the retail fact sheet.
More recently, SEBI reclassified Real Estate Investment Trusts as equity-related instruments in November 2025, a change we covered in detail, which widens the pool of instruments an equity scheme can hold and therefore complicates like-for-like benchmarking. When the opportunity set widens, the case for a risk-adjusted metric such as the Information Ratio strengthens, because two "equity" funds can now hold materially different underlying exposures. You can read the background in our note on how SEBI reclassified REITs as equity-related instruments.
The macro backdrop against which these disclosure changes land is a repo rate of 5.25%, per the Reserve Bank of India's current policy stance. A 5.25% policy rate anchors the risk-free comparison that sits at the heart of Sharpe-style metrics, and a lower rate environment tends to raise the premium investors are willing to pay for demonstrable active skill. That makes the Information Ratio's arrival timely rather than academic.
The tax layer completed its own move in the current cycle. The Section 87A rebate under the new regime now stands at Rs 60,000 for total income up to Rs 12,00,000, and the beta of your portfolio still determines how much of the market's swing you actually carry. Investors reworking allocations after these changes should model the outcomes rather than eyeball them, which is where a SIP calculator earns its place.
What to Watch Today
The single item to watch is implementation. SEBI's January 2025 circular tells fund houses what to disclose; the practical questions are which scheme categories it binds and where the number will appear. Investors should read the full circular on the SEBI website before drawing category-level conclusions, because applicability and timelines are specified there rather than in secondary summaries. Treat any third-party claim about specific category coverage with caution until matched against the primary text.
The second thing to watch is the publication channel. Standardised mutual fund performance disclosures in India are consolidated by the Association of Mutual Funds in India (AMFI), so the Information Ratio is most likely to surface alongside existing return and risk data that flows through industry disclosure. Checking the AMFI portal at amfiindia.com and the individual scheme fact sheet is the correct verification step before you act on any single ratio.
Third, watch how you use the number. An Information Ratio is only meaningful over a sufficiently long window; a ratio computed over six months carries far less signal than one measured over three to five years, because tracking error needs enough observations to be stable. As a rule of thumb from portfolio practice, an Information Ratio around 0.5 is respectable and one sustained above 1.0 over multiple years is genuinely rare. Do not chase a single high reading.
Here is a compact watchlist for turning the disclosure into a decision.
| What to check | Where | Why it matters |
|---|---|---|
| SEBI circular text | sebi.gov.in | Confirms scope, categories and timeline |
| Information Ratio value | Scheme fact sheet / amfiindia.com | The core skill signal |
| Measurement period | Fact sheet footnote | Under 3 years is low signal |
| Expense ratio | Scheme document | Skill must beat the fee it costs |
The practical takeaway for today's pre-open is unglamorous but durable: use the Information Ratio to rank funds within the same category, over at least a three-year window, and only after confirming the expense ratio is justified by the excess return. Pair it with the alpha figure for a fuller picture, and if you are deploying a fresh corpus rather than a monthly instalment, stress-test the horizon with a lumpsum calculator and a step-up SIP calculator. A disclosure norm from January 2025 cannot pick your fund, but it can stop you paying active fees for passive results.
FAQ
What is the Information Ratio in a mutual fund?
The Information Ratio is a risk-adjusted return measure equal to a scheme's active return, its return minus its benchmark's return, divided by its tracking error. SEBI mandated its disclosure through circular SEBI/HO/IMD/IMD-PoD-2/P/CIR/2025/6 dated 17 January 2025 so investors can compare scheme performance net of the risk taken.
How is the Information Ratio different from Alpha?
Both are benchmark-relative, but alpha states the excess return itself while the Information Ratio scales that excess return by its consistency, dividing it by tracking error. A fund can post positive alpha yet a modest Information Ratio if its outperformance was erratic. Read our alpha and tracking error entries for the full definitions.
Does the Information Ratio change my tax on mutual funds?
No. The metric is a performance disclosure only. Long-term capital gains on equity remain taxable at 12.5% above the Rs 1,25,000 annual exemption, and short-term equity gains at 20%, regardless of a scheme's Information Ratio.
What is a good Information Ratio?
As a general portfolio-management benchmark, a ratio near 0.5 is considered respectable and one sustained above 1.0 over multiple years is rare. Always confirm the measurement period; a figure computed over less than three years carries limited signal because tracking error needs enough observations to stabilise.
Where will I see the Information Ratio disclosed?
It is expected to appear alongside existing standardised performance data, most reliably on the individual scheme fact sheet and through industry disclosure consolidated by AMFI at amfiindia.com. For the exact scope and format, refer to the SEBI circular at sebi.gov.in.
Should I switch funds based only on the Information Ratio?
No single metric should drive a switch. Combine the Information Ratio with the expense ratio, alpha, and your own goal horizon, and model the outcome with a SIP calculator before acting. Switching also has tax consequences at the 12.5% long-term or 20% short-term equity rates.
Does the repo rate affect risk-adjusted return metrics?
Indirectly. The Reserve Bank's current repo rate of 5.25% sets the risk-free reference used in Sharpe-style measures, and a lower policy rate tends to raise the premium investors will pay for demonstrable active skill. The Information Ratio itself, however, is measured against the scheme's benchmark rather than the repo rate.
Sources & Citations
Frequently Asked Questions
What is the Information Ratio in a mutual fund?
The Information Ratio equals a scheme's active return (its return minus its benchmark's return) divided by its tracking error. SEBI mandated its disclosure through circular SEBI/HO/IMD/IMD-PoD-2/P/CIR/2025/6 dated 17 January 2025 so investors can compare performance net of the risk taken.
How is the Information Ratio different from Alpha?
Both are benchmark-relative, but alpha states the excess return itself while the Information Ratio scales that excess return by its consistency, dividing it by tracking error. A fund can post positive alpha yet a modest Information Ratio if its outperformance was erratic.
Does the Information Ratio change my tax on mutual funds?
No. It is a performance disclosure only. Long-term capital gains on equity remain taxable at 12.5% above the Rs 1,25,000 annual exemption, and short-term equity gains at 20%, regardless of a scheme's Information Ratio.
What is a good Information Ratio?
As a general portfolio-management benchmark, a ratio near 0.5 is respectable and one sustained above 1.0 over multiple years is rare. Confirm the measurement period; a figure computed over less than three years carries limited signal.
Where will I see the Information Ratio disclosed?
It is expected to appear alongside existing standardised performance data, most reliably on the individual scheme fact sheet and through industry disclosure consolidated by AMFI at amfiindia.com. For exact scope and format, refer to the SEBI circular at sebi.gov.in.
Should I switch funds based only on the Information Ratio?
No single metric should drive a switch. Combine it with the expense ratio, alpha, and your goal horizon, and model the outcome before acting. Switching also triggers tax at the 12.5% long-term or 20% short-term equity rates.
Does the repo rate affect risk-adjusted return metrics?
Indirectly. The Reserve Bank's current repo rate of 5.25% sets the risk-free reference used in Sharpe-style measures. The Information Ratio itself is measured against the scheme's benchmark rather than the repo rate.