Risk Management Framework (RMF) for Mutual Funds
Summary
This section introduces the revised Risk Management Framework (RMF) for mutual funds to replace the 2002 circular effective January 1, 2022. It mandates that Asset Management Companies (AMCs) establish a structured RMF comprising governance, risk identification, measurement, and reporting components. The framework requires AMCs to appoint specific officers, including a Chief Risk Officer, and form Risk Management Committees to oversee compliance. This section outlines the recommended elements of a Risk Management Framework (RMF), including delegation of power and risk management committees. It details the specific roles and responsibilities of the Board of AMC, Trustees, and senior management in overseeing risk appetite and governance. Furthermore, it assigns distinct operational duties to the CEO, CRO, CIO, and other CXOs for implementing and monitoring risk controls. This section defines the Fund Manager's responsibilities for daily investment risk management and adherence to SEBI guidelines. It outlines the mandatory and recommendatory elements for identifying risks, including specific risk profiles and appetite statements. Furthermore, it establishes requirements for measuring
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AMCs shall perform a self-assessment... systems must be in place... with effect from January 01, 2022. The Circular No. MFD/CIR/15/19133/2002... shall be rescinded with effect from January 01, 2022.
Compliance with the RMF should be reviewed annually by the AMC. Reports of such reviews shall be placed before the Board of AMC and Trustees... Trustees may forward the findings... to SEBI in the half-yearly trustee reports.
This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with the provisions of Regulation 77 of SEBI (Mutual Funds) Regulations, 1996...
AMCs shall establish a RMF for its mutual fund business. The RMF of mutual funds shall have the following characteristics: Be structured, efficient and timely; Be an integral part of the mutual fund’s processes...
The objectives of RMF should assist the management and the Board of Directors of both AMC and Trustees in: Demonstrating high standards of due diligence... Promoting proactive management... Managing risk within the tolerance limits defined in the RMF.
The RMF of mutual funds shall comprise the following components: Governance and Organization; Identification of Risks; Measurement and Management of Risks; Reporting of Risks and related Information.
Risk Management shall be an independent and specific function of the AMC.
There should be at least one CXO level officer identified to be responsible for the risk management of specific functions... dedicated risk officers for various key risks such as Investment Risk... Compliance Risk... Operational Risk... Cyber Security...
AMC should have a Chief Risk Officer (CRO)... both the AMC and the trustees should mandatorily have separate Risk Management Committees (RMCs). These committees shall undertake annual review of RMF... The CRO should be part of the RMCs.
There shall be clear demarcation between the roles and responsibilities of the respective CXOs and the CRO... the CRO would be responsible for the overall governance of the RMF... The CRO or the risk management function... cannot be entrusted with day to day functioning...
The AMC should maintain risk metric for each mutual fund scheme... The RMCs shall meet at least once in a quarter to review various risks including risk metrics at both the scheme and the AMC level...
The policy on the RMF shall be approved by the board of AMC and trustees. The mandatory and recommendatory elements for inclusion in the risk management policy... are outlined below:
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Source: SecMarx — Risk Management Framework (RMF) for Mutual Funds. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.