The Securities and Exchange Board of India (SEBI) has made it mandatory for mutual funds to assign a risk level to schemes, based on certain parameters.
- SEBI’s decision on the “risk-o-meter”, which it announced on October 5, 2020, came into effect on January 1, 2021.
- The regulator made it mandatory for mutual fund houses to characterise the risk level of their schemes on a six-stage scale from “Low” to “Very High”. The “Very High” category is new — after calculating their risk value from their respective portfolios.
- All mutual funds shall assign a risk level to their schemes at the time of launch, based on the scheme’s characteristics.
- The risk-o-meter must be evaluated on a monthly basis. Fund houses are required to disclose the risko-o-meter risk level along with the portfolio disclosure for all their schemes on their own websites as well as the website of the Association of Mutual Funds in India (AMFI) within 10 days of the close of each month.
- Any change in the risk-o-meter reading with regard to a scheme shall be communicated to the unit-holders of that scheme.
- For an equity portfolio, the risk value would be a simple average of market capitalisation value, volatility value, and impact cost value.
(Source: Indian Express)
