SEBI plans overhaul of mutual funds 'risk-o-meter'

SEBI plans to move credit risk funds to the new very high risk category.

Published: Sep 16, 2020
SM_SEBI_shutterstock_1424210414 Image: Shutterstock

The Securities and Exchange Board of India (SEBI) is planning another set of reforms, where it might revamp the mutual fund (MF) risk-o-meter.

The market regulator will expand the MF risk-o-meter to include a "Very High" risk category, CNBC-TV18 reported.

The five existing categories of MFs are - low, moderately low, moderate, moderately high and high.

The proposal comes shortly after SEBI on September 13 modified norms on asset allocation by multi-cap funds.

The risk in equity funds will be assesses on the basis of three parameters - market capitalisation, volatility, and impact cost, the report said.

Also read: Stock Market Classroom | Here's what Udayan Mukherjee has to say about SEBI's latest rules for multi-cap MFs

Equity funds will be reclassified into the high and high risk categories, the news channel reported. All credit risk funds will be moved to the new very high risk category.

The report said credit risk funds will be judged on the basis of quality, duration, and liquidity of bonds.

The new risk classification will be scheme-specific, and not category specific.

Asset management companies (AMCs) will be required an annual timeline of how the risk has evolved in each fund, the report added. Any change in a scheme's underlying assets should reflect in the scheme's risk classification.

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