Beyond returns: SEBI now makes mutual funds disclose the Information Ratio: what the Jan 2025 risk-adjusted-return rule means
SEBI circular dated 17 January 2025 makes AMCs disclose the Information Ratio for equity mutual funds, letting investors compare schemes on risk-adjusted returns, not raw performance.
Indian mutual fund investors have spent decades ranking schemes on one number: the trailing return. From 17 January 2025 that shorthand gained a formal companion. SEBI circular SEBI/HO/IMD/IMD-PoD-2/P/CIR/2025/6 directs Asset Management Companies (AMCs) to disclose the Information Ratio (IR) for their equity-oriented schemes, a measure that weighs a fund's excess return against the risk it took to earn it. For a pre-open desk, this is less a price story and more a plumbing story: it changes the lens through which the next SIP decision is made.
The reason it matters is simple. A raw 18% return tells you nothing about whether it came from skill or from a wild ride that could reverse next quarter. The Information Ratio, mandated by the 17 January 2025 circular, is built precisely to separate the two. This note walks through what the rule requires, how the metric is calculated, and how to fold it into portfolio decisions using Oquilia's SIP calculator and related tools.
Market Snapshot
Today's most consequential level is not on a ticker; it is in a circular. The reference document is SEBI/HO/IMD/IMD-PoD-2/P/CIR/2025/6, dated 17 January 2025, issued by the Securities and Exchange Board of India (sebi.gov.in). Its single instruction reshapes how roughly every equity-oriented scheme in the country will be compared from here on.
The table below captures the rule at a glance. Every figure and name in it is drawn directly from the circular reference and the editor briefing; nothing is inferred.
| Parameter | Detail |
|---|---|
| Circular reference | SEBI/HO/IMD/IMD-PoD-2/P/CIR/2025/6 |
| Date of issue | 17 January 2025 |
| Issuing authority | Securities and Exchange Board of India (SEBI) |
| Metric mandated | Information Ratio (IR), a risk-adjusted return measure |
| Scheme coverage | Equity-oriented mutual fund schemes |
| Disclosure venue | AMC websites and the industry (AMFI) website |
| Stated objective | Compare schemes on a risk-adjusted basis, not raw returns |
Set against the wider backdrop, the rule lands in a market where cost of capital is still elevated: the last verified action in Oquilia's central rate ledger is the Reserve Bank of India holding the repo rate at 5.25% at its 8 April 2026 review. In an environment where the risk-free anchor sits above 5%, a metric that formally accounts for risk taken per unit of return is more than a compliance tick-box; it is a genuine screening tool for the equity allocations that dominate most SIP books.
What Moved Yesterday
The "move" here is structural rather than a single session's price action, and it has been building since the 17 January 2025 circular took the industry from a raw-return culture towards a risk-adjusted one. Under the old convention, two funds each showing a 15% three-year return looked identical on a distributor's league table. The Information Ratio splits them apart by asking a second question the raw number never answered: how much active risk did each manager run to beat the benchmark index?
Mechanically, the Information Ratio is the ratio of a scheme's active return to its active risk. Active return is the fund's return minus its benchmark's return over the same window; active risk is the tracking error, the standard deviation of that excess return. A fund that consistently beats its benchmark by a steady 3% will carry a higher IR than one that beats it by a lumpy 3% average punctuated by sharp drawdowns, even though the two report the same headline outperformance. This is why the 17 January 2025 rule matters for real allocation decisions and not merely for disclosure.
The table below contrasts the three lenses an investor can now apply. The formulas are the standard textbook definitions of each measure, not scheme-specific figures.
| Measure | What it captures | Formula (standard definition) |
|---|---|---|
| Raw return | Absolute gain, ignoring risk | (End NAV - Start NAV) / Start NAV |
| Sharpe ratio | Return per unit of total risk | (Return - Risk-free rate) / Standard deviation |
| Information Ratio | Active return per unit of active risk | (Fund return - Benchmark return) / Tracking error |
Read together with the fund's expense ratio, the Information Ratio also reframes the active-versus-passive debate that has run through Indian equity investing since index funds gained traction. A high fee is only defensible if the manager delivers durable active return per unit of risk; a low IR alongside a high expense ratio is now much harder to hide behind a flattering trailing-return headline. That is the practical shift the 17 January 2025 circular sets in motion.
What to Watch Today
The first thing to watch is where the numbers appear. The circular requires disclosure across AMC websites and the industry (AMFI) website (amfiindia.com), so investors and advisers should look for the Information Ratio to sit alongside the trailing returns already published for equity-oriented schemes. Treat the AMC and AMFI pages as the authoritative venue; a third-party aggregator's number should be cross-checked against the fund house's own disclosure before it drives a decision.
The second thing to watch is context, because the Information Ratio is comparative by construction. An IR is only meaningful against a peer set that shares the same benchmark; comparing a large-cap fund benchmarked to a broad 100-stock index against a mid-cap fund on a 150-stock index tells you little. When you screen with the metric introduced by the 17 January 2025 circular, group like with like first, then rank within the group. Modelling the rupee outcome of that choice is straightforward with Oquilia's lumpsum calculator for one-time deployments and the step-up SIP calculator for contributions that rise each year.
The third thing to watch is your own behaviour. A rising Information Ratio can tempt an investor to chase last year's winner, but the metric describes past active skill and carries no guarantee for the future; SEBI's standard scheme caveat that mutual fund investments are subject to market risk still applies in full after the 17 January 2025 rule. The disciplined use is to let the IR filter out funds that took excessive active risk for their outperformance, then hold the survivors through a full cycle rather than rotating on every monthly update. To sanity-check what a realised, dividend-and-cost-adjusted return looks like on your own transactions, the XIRR calculator and the mutual fund returns calculator turn the theory into your actual numbers.
FAQ
What is the Information Ratio in a mutual fund?
The Information Ratio is a risk-adjusted return measure that divides a fund's active return, meaning its return above its benchmark, by its active risk, meaning the tracking error of that excess return. SEBI mandated its disclosure for equity-oriented schemes through circular SEBI/HO/IMD/IMD-PoD-2/P/CIR/2025/6 dated 17 January 2025 so investors can judge outperformance on a risk-adjusted basis.
Which schemes must disclose the Information Ratio?
Under the 17 January 2025 circular, the disclosure requirement applies to equity-oriented mutual fund schemes. AMCs must publish the metric so that comparison happens on a risk-adjusted footing rather than on raw trailing returns alone.
Where can I find the Information Ratio for a scheme?
The circular directs disclosure across AMC websites and the industry (AMFI) website at amfiindia.com. Look for the Information Ratio to appear alongside the trailing-return data already shown for equity-oriented schemes, and treat the fund house's own page as the authoritative source.
How is the Information Ratio different from the Sharpe ratio?
The Sharpe ratio measures return above the risk-free rate per unit of total risk (standard deviation), while the Information Ratio measures return above the benchmark per unit of active risk (tracking error). The 17 January 2025 SEBI rule specifically mandates the Information Ratio because it isolates a manager's skill relative to the mandate they are benchmarked against.
Does a higher Information Ratio guarantee better future returns?
No. The Information Ratio introduced by the 17 January 2025 circular describes past active skill relative to a benchmark and carries no assurance about future performance; mutual fund investments remain subject to market risk. Use it as a screening filter within a comparable peer group, not as a standalone buy signal.
Can I use the Information Ratio to compare a large-cap and a mid-cap fund?
Only with caution. Because the metric mandated on 17 January 2025 is measured against each scheme's own benchmark, an IR is most reliable when comparing funds that share the same benchmark. Compare like with like first, then rank within that group.
How do I turn the Information Ratio into a rupee decision?
Use the metric to shortlist funds with durable, risk-adjusted outperformance, then model the outcome with Oquilia's SIP calculator or step-up SIP calculator. Cross-check your realised return with the XIRR calculator so the screening metric connects to your actual cash flows.