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What’s in a Label ? Examining SEBI’s new Risk Classification of Funds

Posted By: Admin

Mutual Funds are subject to market risks, please read the scheme related offer documents before investing. This Is the standard safe harbor statement of all Mutual Fund advertisements. Yet most investors who invest do not have the time nor the energy to go through this in detail and therefore end up making investments which are high on risk even if their temperament for risk taking is low. To simplify product communication and help investors understand the risks of a scheme at a glance, Securities and Exchange Board of India (SEBI) has a system of product labelling in place that ensures the investor makes investments in mutual fund schemes that correspond to the investor’s risk profile. The product labelling of mutual funds is based on the concept of ‘Riskometer’ and this meter depicts the level of risk in any specific mutual fund scheme.

Till now, the Riskometer depicted five risk areas – Low, Moderately Low, Moderate, Moderately High and High Risk. Going forward, there will be a new risk area for the MF schemes. SEBI, based on the recommendation of Mutual Fund Advisory Committee (MFAC), has reviewed the guidelines for product labeling in mutual funds and has decided to introduce, ‘Very High Risk’ as the sixth risk profile for the MF schemes.

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