Sebi replaces colour codes for mutual fund with ‘riskometer’

To help investors better understand risks involved in mutual fund investments, regulator Sebi today replaced the mandatory colour codes with a ‘riskometer’ containing five levels of risks from low to high.

The mutual funds would need to mention the risk level of a scheme through a speedometer-like mechanism, while specifying whether the investment was of low or high risk in nature. The five risk levels would be low, moderately low, moderate, moderately high and high. The new system would replace the existing practice of colour-coding the schemes wherein the funds needed to be given blue, yellow and brown codes to indicate low, medium and high risk respectively.

The guidelines would be effective from July 1, 2015, for all existing and forthcoming schemes, the Securities and Exchange Board of India (Sebi) said in a circular. The level of risk in mutual fund schemes has been increased to five categories from the current three. “The depiction of risk using colour codes would be replaced by pictorial meter named “riskometer” and this meter would appropriately depict the level of risk in any specific scheme,” it added.

It further said that all funds may ‘product label’ their schemes on the basis of the best practice guidelines issued by industry body Association of Mutual Funds in India (AMFI) in this regard. In 2013, Sebi had issued a framework on ‘product labelling’ with colour coding for mutual funds, in a move to help investors assess the risk associated with the schemes.

As per the norms, product labels carrying details about the schemes have to be disclosed on the front page of initial offering application forms.