Debt fund risks to be highlighted
In its efforts to enable investors to evaluate potential future risks in funds they invest in; SEBI issued a circular on June 7, 2021. Here is what investors can expect from this development:
- Introduction of Potential Risk Class Matrix for debt schemes based on Interest Rate Risk and Credit Risk
- Mutual Funds to indicate risk taken by schemes as on the end of the month
- Risks taken to be captured by the specified Risk-o-Meter to indicate the actual risk in the portfolio taken by the fund manager
- Investors will be able to take informed decisions with current risk level as indicated by Risk-o-Meter and the maximum risk the fund manager can take in the scheme
- Potential risk grid with credit risk on x-axis and interest rate risk on y-axis to follow 3 grade labelling with; relatively low, moderate and relatively high for the parameters making up for a 3 X 3 grid box.
- The grid scoring will have Credit Risk Value (CRV) that follows a high score of 13 for G-sec/SDL/Repo etc and lowest of 1 for below investment grade bond
- The interest rate risk will be measured in terms of Macaulay Duration) as Class I, where MD is less than 1 year, Class II where MD is less than 3 years and Class III where MD could be anything.
- This move is expected to plugs the loopholes in debt fund categorisation
- This new rule will come into effect from December 2021
For more details look up the circular at https://www.sebi.gov.in/legal/circulars/jun-2021/circular-on-potential-risk-class-matrix-for-debt-schemes-based-on-interest-rate-risk-and-credit-risk_50440.html