The Securities and Exchange Board of India (SEBI) is planning another reform. That the mutual fund (MF) can restore the risk-O-meter.
CNBC-TV18 reports that the market regulator is expanding the MF Risk-O-Meter to include “Very High” risk category.
There are currently five categories of MFs – low, moderately low, moderate, moderately high, and high.
The proposal comes on the heels of SEBI’s, September 13th modified rules on asset allocation through multi-cap funds.
Losses in equity funds can be an estimate based on three parameters: market capitalization, volatility, and impact cost.
The news channel reported that equity funds will be reclassified into higher and higher risk categories. All credit risk funds will be a move to a new high-risk category.
Credit risk funds are the determining basis on the quality, duration, and liquidity of the bonds, the report said.
The new risk classification is scheme-specific and not category-specific.
The report states that Asset Management Companies (AMCs) need an annual timeline of how risk arises in each fund. Any change in the underlying assets of the scheme is reflected in the risk classification of the scheme.