Currently fund houses are required to use three colours to guide investors on product suitability.
SEBI may add two more colours to the existing list of three colours used to denote product suitability for investors.
In its recently held meeting with distributors, AMFI is said to have communicated that SEBI is working on streamlining product labelling guidelines. Currently fund houses assign brown, yellow and blue to indicate the degree of risk in a scheme. As per SEBI guidelines, schemes with low risk are denoted with blue colour, those with medium risk are assigned yellow and schemes with high risk brown colour mark.
Fund houses started colour coding their schemes from July 2013 following a SEBI diktat.
However, there was confusion regarding its implementation among AMCs. AMCs were following different methods to classify their schemes. To end this confusion, SEBI had asked AMFI to standardize the methodology for uniform application of product labelling across industry.
AMFI had standardized product label guidelines in May 2014.
Currently fund houses label their schemes the following way:
- Blue – debt schemes
- Yellow - Blended schemes which have a mix of debt and equity, static allocations domestic feeder funds having predominant debt allocation
- Brown – equity oriented schemes, foreign feeder funds and all active allocations domestic feeder funds
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.
Financial advisors say adding more colours will only add to the confusion in the minds of investors.
