Come July you would be offered colour codes that will signify the amount of risk the mutual fund (MF) scheme of your choice carries.
In an attempt to prevent mis-selling in MF schemes, the Securities and Exchange Board of India (Sebi) has directed fund houses to label and colour code their schemes on specified parameters. This includes the nature of the scheme, stating whether it aims to create wealth or provide regular income in an indicative time horizon. A brief about the investment objective (in a single line sentence) followed by the kind of product in which investor is investing (equity/debt) should also be given. The level of risk will be depicted by colour code boxes.
- While blue is an indication that the principal sum is at low risk,
- Yellow would suggest that it is at medium risk.
- A brown code means that the principal sum is at high risk.
“The colour codes shall also be described in text beside the colour code box,” Sebi said in its latest circular.
- Regular fixed income schemes for the short-term and investments in debt, money market instruments as well as government securities would come under the low-risk (Blue) category.
- Products that offer long-term capital appreciation and current income and investments in equity and equity-related securities as well as fixed income instruments (debt and money market securities) would fall under the medium-risk. (Yellow) category. Hybrid schemes and monthly income plans would come under ‘Yellow‘ list.
- Investment in equity and equity-related securities including equity derivatives of top-200 companies by market capitalization would come under the high-risk (Brown) category.
Source:Excerpts from TOI.