May Public Fund Disclosure Goes Major Changes: Monthly Performance "Exits," Fund Holder Profit Ratio and Turnover Rate "Make Their Debut"

How will AI and new regulations reshape the long-term investment culture in the fund industry?

Our reporter Li Pengfei and Ye Qing, Beijing, chinatimes.net.cn

The public fund industry, with assets surpassing 37 trillion yuan, is experiencing a significant change in information disclosure. The China Securities Regulatory Commission recently officially released the revised “Guidelines for Content and Format of Information Disclosure of Publicly Offered Securities Investment Funds No. 2—Periodic Reports,” which will be fully implemented starting May 1, 2026.

The core change in this revision is: fund periodic reports will no longer disclose short-term performance over the past month. Instead, they will add disclosures of medium- and long-term performance over the past 7 and 10 years, and introduce new indicators such as profit-making investor ratio and stock turnover rate. The goal is to guide the industry away from excessive focus on short-term rankings and return to the fundamental long-term value investing.

Zhao Hongyan, director of the Youth Lawyers Working Committee of Shaanxi Lawyers Association and head of Shaanxi Yingjiu Law Firm, told Huaxia Times that the removal of the 1-month short-term performance and the addition of 7- and 10-year long-term performance disclosures are not simple technical adjustments. Instead, they direct regulators to solidify management obligations through mandatory information disclosure, transforming it from a contractual freedom into a legal obligation, representing an upgrade from “contractual freedom” to “legal duty” in supervision.

Adding 7- and 10-year performance, downplaying 1-month results

According to the requirements of the China Securities Investment Fund Industry Association’s simultaneous release of the “Securities Investment Fund Information Disclosure XBRL Template,” fund managers are required to include medium- and long-term performance over the past 7 and 10 years in annual, semi-annual, and quarterly reports, and no longer disclose performance over the past month. This adjustment is seen by the market as a strong signal.

A market professional told Huaxia Times that previously, fund companies focused heavily on “how much the fund has increased in the past month,” leading many fund managers to frequently buy and sell stocks to chase short-term rankings. While short-term gains looked impressive, they often underperformed the market over the long run and increased transaction costs. Meanwhile, many funds claimed to be “long-term profitable,” but how many retail investors actually made money remains unclear—creating the industry’s common saying: “Funds make money, retail investors don’t.”

The professional further explained that some actively managed equity and hybrid funds currently have high stock turnover rates, which contradict value and long-term investment principles and may lead to poor long-term returns for investors. Extending the assessment period to 7 and 10 years can truly reflect a fund manager’s management ability and help retail investors develop a long-term investment mindset. For example, one fund may have gained 5% in a month but increased 80% over 7 years, while another gained 8% in a month but only 50% over 7 years. Previously, investors might have preferred the latter, but looking at long-term performance, the former may be more attractive.

Yao Zihui, chief analyst of the Financial Engineering and Fund Research Team at CITIC Construction Securities, believes that disclosing 7- and 10-year medium- and long-term performance helps guide the industry to value long-term investment concepts. Not disclosing 1-month short-term performance helps reduce the industry’s overemphasis on short-term gains and alleviates the impatience driven by chasing short-term rankings. This adjustment sends a strong signal: it encourages fund managers to focus on building long-lasting performance that withstands the test of time, and educates investors to pay attention to the power of long-term compound interest, fostering rational investment habits. This is a profound shaping of the industry’s investment culture and investor education.

Zhao Hongyan stated that under the new regulation, if managers fail to fully disclose the above long-term indicators as required, it will constitute a violation of information disclosure laws and could face administrative penalties or civil liabilities. She further analyzed that mandatory disclosure effectively reconstructs the fund manager’s assessment cycle. The previous incentive model of “chasing short-term rankings” for year-end bonuses is now challenged legally. Coupled with the “High-Quality Development of Public Funds Action Plan,” which emphasizes that “the weight of medium- and long-term performance assessment over three years should not be less than 80%,” internal control systems must prioritize long-term assessments, and investment decisions must withstand 7- to 10-year scrutiny.

Profit-making investor ratio and transparency of turnover rate

Another highlight of the new disclosure rules is the requirement to disclose the “proportion of profit-making investors” for the first time. According to the new template, fund managers must disclose the ratio of profit-making investors in actively managed equity and hybrid funds over the past year in annual and semi-annual reports. This indicator is calculated as the number of profit-making investors divided by the total number of investors, where profit-making investors are those with net gains of zero or more during the investment period, excluding those with holdings held less than 7 days.

This indicator is seen as the most “grounded” adjustment, directly addressing the industry’s pain point: “funds make money, retail investors don’t.” An industry insider pointed out that if a fund has excellent long-term performance but a low proportion of profit-making investors, it suggests that investors’ trading behavior may be biased or that the fund’s volatility is too high for most holders to endure. Previously, fund companies only reported how much the net asset value increased, regardless of whether retail investors profited. Now, with mandatory disclosure of the true profit ratio, fund companies are forced to improve investor education and reduce losses caused by chasing gains and selling at lows. The mandatory disclosure of this indicator will push fund managers and sales channels to work together to educate investors and maximize their fund returns.

Meanwhile, the regulatory focus is increasingly on improving investment behavior stability. The China Securities Industry Association explicitly requires fund managers to disclose stock turnover rates during the reporting period in annual reports.

A professional explained that many retail investors do not realize that frequent buying and selling by fund managers increases transaction costs, which are ultimately deducted from the fund’s assets and indirectly affect investor returns. It’s important to note that lower turnover rates are not always better; the key is matching the investment style. For example, an active equity fund with a turnover rate over 300% may indicate aggressive management and high short-term volatility, while very low turnover might suggest a lack of active management ability. Disclosing this data helps constrain fund managers’ investment behaviors internally and guides investors externally to recognize investment styles, thereby addressing overly aggressive or short-sighted operations and encouraging a return to “long-term, value investing.”

Legally, the introduction of profit-making investor ratio and stock turnover rate addresses the historical issue of information asymmetry when investors “vote with their feet.” However, it also introduces unprecedented legal compliance and civil liability risks for fund companies. Zhao Hongyan pointed out that mandatory disclosure of profit-making investor ratio essentially establishes “investor satisfaction” as a statutory standard for fund quality, making the divergence between “fund return” and “retail investor return” explicit. This provides clear evidence for investors to hold managers accountable for prioritizing scale over returns.

The transparency of stock turnover rate turns internal operational data into publicly accessible legal information, solving the previous difficulty investors faced in quantifying “transaction costs” and “investment stability.” High turnover rates can erode net asset value and may also be a sign of利益输送 (interest transfer).

Zhao Hongyan warned that if, after the new regulation takes effect, a fund’s contract or promotional materials explicitly or implicitly claim “long-term value investing,” but the annual report discloses a very high turnover rate, it could constitute a “misleading statement.” If the fund suffers losses, investors might file securities false statement lawsuits, claiming that the manager violated the investment strategy stipulated in the fund contract and seeking civil compensation. Similarly, if a fund’s performance benchmark is met and net value grows, but the “profit-making investor ratio” is extremely low, this could serve as strong evidence in investor rights lawsuits. Plaintiffs’ lawyers could argue that the manager failed to fulfill their duty of care and diligence, and did not effectively manage risks (such as controlling drawdowns or imposing restrictions at high levels), thus significantly lowering the burden of proof for investors to demonstrate that “funds make money but they don’t for retail investors.”

It is important to note that the new regulation will be officially implemented on May 1, 2026. This means fund companies will need to start using the new templates and rules when disclosing their mid-year and second-quarter reports in 2026. The fund reports released in mid-2026 will be the first window to observe the impact of the new rules.