SEBI asks MFs to display potential risk of debt schemes

Our Bureau Mumbai | Updated on June 07, 2021

Diktat to take effect from December

The market regulator SEBI has made it mandatory for mutual funds to display the potential risk a debt schemes can take along with the risk-o-meter already being circulated to investors at the end of the month.

In a circular on Monday, SEBI said to take an informed decisions, investors need to know current risk level as indicated by Risk-o-Meter and the maximum risk the fund manager can take in the scheme.

Should reveal maximum risk

The circular will come into force with effect from December 1 for all the existing debt schemes and all the debt schemes to be launched on or thereafter. However, MFs may at their discretion, choose to adopt the provisions of this circular before the effective date, it said.

While the Risk-o-Meter stipulated by SEBI reflects the current risk of the scheme at a given point in time, there is also a need for disclosure of the maximum risk the fund manager can take in a scheme.

Based on the recommendation of the Mutual Fund Advisory Committee and discussions held with the mutual fund industry, it has been decided that all debt schemes also be classified in terms of a Potential Risk Class matrix consisting of parameters based on maximum interest rate risk and maximum credit risk.

Credit Risk Value of the scheme shall be the weighted average of the credit risk value of each instrument in the portfolio of the scheme. The weights of each instrument will be based on their proportion to the AUM.

Published on June 07, 2021

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