All mutual fund advertisements, application forms, key information memorandum (KIM) and scheme information documents (SIDs) will now bear colour codes which denote the level of risk associated with schemes.
For instance, FMPs will bear blue colour code which means these schemes carry low risk and the principal is protected. The schemes which aim to generate capital appreciation and income (for instance, hybrid funds) will bear yellow colour. Equity schemes will bear brown colour which means these schemes have a high risk.
The colour codes will be described in text beside the colour code box. Application forms will also have a disclaimer stating that investors should consult their financial advisers if they are not clear about the suitability of the product.
Financial advisors feel that the move is uncalled for. “It will encourage mis-selling. Colour can’t be substituted for offer documents. Investors will just go by the colour and invest. One has to read the investment mandate, offer document and the strategy of the fund. It will be difficult for advisors to sell equity funds as clients may fear that they’ll lose money by seeing the brown colour,” says a Mumbai based financial advisor who manages assets under advisory of nearly Rs 300 crore.
