Sebi has revised norms that require fund houses to assess and label risks in various schemes. The Risk-o-meter will now capture inherent risks in a fund’s portfolio in detail.
Till now Funds across debt and equity were assigned risk grade basis a perceived risk of the category. For example, all equity funds were categorised has ‘high risk’ irrespective of the portfolio. From January 1, the revised Risk-o-meter will be able to bring out differences in risk profile of funds within the same category. AMCs will have to communicate changes in the risk profile to investors on an ongoing basis.
Experts believe that this re-labelling will benefit investors particularly with respect to debt funds / schemes. The debt market during recent times have been affected by risks which were previously not factored. For example, liquidity risk was not part of the current risk-o-meter. Going forward, all debt funds will be risk categorised basis average score on 3 different risk parameters – credit risk, interest rate risk and liquidity risk. Each metric will be separately assessed for all securities in a fund / scheme portfolio and a weighted average score will represent the risk label of that fund / scheme.
While there are a few who believe that the revised norms is not as robust as it should be, most believe that gaps will get plugged as the scoring mechanism evolves. Even in the current revised form, investors will find it useful than where they were required to review portfolios of each schemes carefully in more detail before investing. Further, since the Risk-o-meter will be required to be updated each month, investors will be alerted on any drastic changes to the risk of their investments and make necessary adjustments sooner than later.
The views above are those of the author and does not purport to be recommendation or advice by the author or www.acru.in. Readers are advised to consult their financial advisors and act accordingly.
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