Sebi introduces potential risk class for debt schemes
A NINE-CELL MATRIX WILL DISPLAY THE INTEREST AND CREDIT RISK ASSOCIATED WITH THE SCHEME
Markets regulator Sebi on Monday asked mutual funds to classify all debt schemes in terms of a potential risk class matrix, based on interest and credit risk.
In this regard, a display table has been made mandatory from December 1, 2021, the Securities and Exchange Board of India (Sebi) said in a circular.
The 9-cell table or matrix will display the interest and credit risk associated with the scheme. This will provide relevant information to investors to make an informed decision while making decision low risk to moderate risk to high risk in combination of credit and interest rate risks, Samco Securities, Head RankMF, Omkeshwar Singh, said.
While the Risk-o-Meter reflects the current risk of the scheme at a given point in time, Sebi said a need was felt for disclosure of the maximum risk the fund manager can take in the scheme.
"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 (measured by
Macaulay Duration (MD) of the scheme) and maximum credit risk (measured by Credit Risk Value (CRV) of the scheme)," Sebi said.
The decision has been taken based on the recommendation of the Mutual Fund Advisory Committee (MFAC) and discussions held with the mutual fund industry.
Sebi said asset management companies (AMCs) will have full flexibility to place single or multiple schemes in any cell of the Potential Risk Class matrix (PRC).
For the purpose of alignment of the existing schemes with the provisions of the new framework, each scheme will be placed in one of the 9 cells specified by the regulator, while retaining their existing scheme category as specified under 'Categorization and Rationalization of Mutual Fund Schemes'. However, subsequently, once a PRC cell selection is done by the scheme, any change in the positioning of the scheme into a cell resulting in a risk (in terms of credit risk or duration risk) which is higher than the maximum risk specified for the chosen PRC cell, will be considered as a fundamental attribute change of the scheme.
The mutual funds will have to inform the unitholders about the classification in one of the 9 cells and subsequent changes, if any, through SMS and by providing a link on their website referring to the change. For new schemes, the AMC will have choose the PRC cell at the time of filing of Scheme Information document Sebi.