Fund officials say that there are discrepancies in the way AMCs color code their products.
AMFI is likely to standardize the process of product labeling for AMCs. Product labeling, which came into effect from July 1, 2013, was introduced by SEBI to curb mis-selling.
“We are working on standardizing the product labeling procedure for the industry. It is in a preliminary stage,” said H N Sinor, CEO, AMFI.
The recent volatility and negative returns seen in debt funds has put the relevance of product labeling under question. For instance, liquid funds are denoted by blue color, which according to SEBI’s definition carry low risk of losing principal. Many mutual fund officials have not been enthused about the idea of color coding their schemes ever since it was introduced by SEBI.
AMCs are supposed to put color codes in all their advertisement materials, front page of initial offering application forms, key information memorandum (KIM), scheme information documents (SIDs) and common application forms.
“There are discrepancies in the way products are labeled across AMCs. We are waiting for AMFI to bring some standardization in this process,” said Arvind Sethi, Managing Director & CEO, Tata Mutual Fund.
“AMCs might differ in categorizing some products based on their risk so the color code may differ,” says the product head of a bank sponsored fund house.
Currently the product labels are divided into three categories – blue, yellow and brown. Blue determines that principal is at low risk while yellow signals that the principal is at medium risk. Brown indicates that the principal might be at high risk.
