The new risk gauging tool introduced by SEBI Riskometer comes into effect from today replacing the colour coding system of mutual fund schemes.
Last month, SEBI had introduced Riskometer to help investors understand risks containing different levels - from low to high. In the circular, SEBI said that Riskometer would provide investors an easy understanding of the product/scheme they are investing in and its suitability for them.
The decision was taken after consultation with Mutual Fund Advisory Committee (MFAC) of SEBI which has reviewed the system of product labeling 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 levels of risk – 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).
AMFI has issued guidelines to fund houses to formulate norms for the usage of Riskometer.
Here’s how fund houses will use Riskometer:
- Low – liquid funds and ultra-short term bond funds having average maturity of less than 90 days
- Moderately low – short to medium term funds having average maturity between 91 days and 3 years
- Moderate - income funds and gilt funds having average maturity of over 3 years; arbitrage funds and debt oriented hybrid funds having up to 20% exposure to equity components in the portfolio
- Moderately high - diversified equity funds, balanced funds, indexed ETF and gold ETF
- High- sector funds/thematic funds, international funds and sectoral ETF
