Sebi mulls standardise format for disclosure of change in MF risk-o-meters

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To further enhance the pictorial representation of risk, Sebi on Thursday proposed that the risk-o-meter of a mutual fund scheme be depicted using a colour scheme, a move aimed at further aiding in informed decision making by investors.

To standardise the format of disclosure and for ease of understanding of the change in level of risk for unitholders, the mutual funds should disclose the existing risk-o-meter, along with the revised risk-o-meter, Sebi suggested in its consultation paper.

Any change in risk-o-meter of the scheme or its benchmark should be communicated by way of notice and by way of an e-mail or SMS to unitholders of that particular scheme.

In addition to the existing labels relating to levels of risk -- low, low to moderate, moderate, moderately high, high and very high, the risk-o-meter should also be depicted using a colour scheme.

Risk-o-meter needs to have six levels of risk for mutual funds -- green for low risk Irish; chartreuse for low to moderate risk; neon yellow for moderate risk; caramel in case of moderately high risk; dark orange for high risk; and red in cases of very high risk.

Considering that the expenses, expense ratio, returns and yields for direct plans and regular plans are different, it has been proposed that such disclosures pertaining to both direct plan as well as regular plan should be disclosed in a standard format.

Currently, expenses, expense ratio, returns and yields of all regular plans are disclosed by asset management companies (AMCs).

The proposals are aimed at facilitating enhanced transparency, ease of comprehension and a standardised approach towards disclosures by the mutual fund industry.

The Securities and Exchange Board of India (Sebi) has sought public comments till October 18 on the proposals.