Product Labeling in Mutual Fund schemes – Risk-o-meter
Summary
This circular mandates the use of a Risk-o-meter to depict six specific risk levels for mutual fund schemes. It requires Mutual Funds and AMCs to evaluate risk monthly, disclose it on websites within ten days, and report annual changes in scheme documents. The document also specifies where product labels must be displayed and clarifies that risk changes do not constitute fundamental attribute changes. This section defines the liquidity risk values for various debt securities based on credit ratings and specific structural features such as being unlisted or having bespoke structures. It establishes calculation methodologies for portfolio liquidity risk, including weighted averages and conservative rating mappings for short-term instruments. Additionally, it introduces equity risk parameters by assigning market capitalization and volatility values to securities. This section details the assignment of risk values for various asset classes including equity, derivatives, REITs, and mutual funds. It establishes a mapping process where calculated risk values are converted into standardized risk levels using a specific table. The text concludes by introducing illustrative examples for debt
Text
Risk-o-meter shall have following six levels of risk for mutual fund schemes: i. Low Risk ii. Low to Moderate Risk iii. Moderate Risk iv. Moderately High Risk v. High Risk and vi. Very High Risk
Based on the scheme characteristics, Mutual Funds shall assign risk level for schemes at the time of launch of scheme/New Fund Offer.
Any change in risk-o-meter shall be communicated by way of Notice cum Addendum and by way of an e-mail or SMS to unitholders of that particular scheme.
Risk-o-meter shall be evaluated on a monthly basis and Mutual Funds/AMCs shall disclose the Risk-o-meter along with portfolio disclosure for all their schemes on their respective website and on AMFI website within 10 days from the close of each month.
Mutual Funds shall disclose the risk level of schemes as on March 31 of every year, along with number of times the risk level has changed over the year, on their website and AMFI website.
Mutual Funds shall publish the following table of scheme wise changes in Risk-o-meter in scheme wise Annual Reports and Abridged summary...
Product label shall be disclosed on: Front page of initial offering application form, Scheme Information Documents (SID) and Key Information Memorandum (KIM).
Common application form – along with the information about the scheme.
Scheme advertisements – placed in manner so as to be prominently visible to investors.
Change in risk-o-meter will not be considered as a Fundamental Attribute Change of the scheme in terms of regulation 18(15A) of SEBI (Mutual Fund) Regulations, 1996.
This circular shall be in force with effect from January 1, 2021, to all the existing schemes and all schemes to be launched on or thereafter. However, mutual funds may choose to adopt the provisions of this circular before the effective date.
This circular is issued in exercise of the powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act 1992, read with the provision of Regulation 77 of SEBI (Mutual Funds) Regulation, 1996...
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Source: SecMarx — Product Labeling in Mutual Fund schemes – Risk-o-meter. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.