Is an equity fund riskier than a debt scheme? Conventional wisdom would say an equity fund is riskier than a debt scheme. But what happens if your debt fund takes considerable credit risks and your equity scheme is a relatively safer large-cap index fund? From the events of the past two years, we now know that the former can get quite risky, even lethal. That’s the anomaly that SEBI’s latest revised product labelling – or risk-o-meter – guidelines (issued on October 5, 2020) seek to address. Through a scoring mechanism for various parameters, MFs will grade each investment in the scheme between 1 and 14. The least risky investment will be given a score of 1. For example, an AAA-rated PSU debt instrument will get a score of 1 on both credit and liquidity risks.
