SEBI has done away with the colour coding of mutual fund schemes and has introduced Riskometer which will depict the level of risk through a meter.
In 2013, SEBI had introduced colour coding in mutual fund schemes to make investors understand the risk associated with mutual funds. Many financial advisors felt that the colour coding system has only created confusion in the minds of investors.
The regulator feels that Riskometer would provide investors an easy understanding of the kind of product/scheme they are investing in and its suitability to them.
The decision was taken after consultation with Mutual Fund Advisory Committee (MFAC) of SEBI which has reviewed the system of product labelling in mutual funds.
AMCs are supposed to put Riskometer in all their advertisement materials, front page of initial offering application forms, key information memorandum (KIM), scheme information documents (SIDs) and common application forms.
The Riskometer will indicate five level of risks – low (principal at low risk), moderately low (principal at moderately low risk, moderate (principal at moderate risk), moderately high (principal at moderately high risk) and high (principal at high risk).
This will come into effect from July 1, 2015. However, fund houses are allowed to implement this guideline from today.
