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Mutual Fund Riskometer IN. Colour Code OUT.

To make life simple for the mutual fund investors and protect their interests, SEBI (Securities and Exchange Board of India) has regularly been introducing customer-friendly measures.

One such step in this regards was the Colour Coding and Labeling of Mutual Funds, introduced couple of years of ago in July 2013.

Any mutual fund scheme's Offer Document, Key Information Memorandum or an Application Form will have a Colour Code and Label.

Mutual Fund Colour Code
This indicates 
a) whether the particular scheme is for wealth creation or regular income; and whether for short term or long term
b) whether it will invest in equity or debt or gold or a mix
c) level of risk through a colour code 
   - Blue (principal at low risk)
   - Yellow (principal at medium risk)
   - Brown (principal at high risk)

Based on the review of the aforesaid depiction of the risk level of a mutual fund scheme, SEBI has decided to modify the same.

Accordingly, henceforth there will be FIVE levels of Risk vis-a-vis THREE in the past, namely
i.   Low : Principal at low risk
ii.  Moderately Low : Principal at moderately low risk
iii. Moderate : Principal at moderate risk
iv. Moderately High : Principal at moderately high risk
v.  High : Principal at high risk

Secondly, the colour code will be replaced by a pictorial meter called the 'Riskometer'. For example, a scheme with 'moderate risk' would be illustrated as under:


All existing mutual fund schemes will have to carry this new Riskometer with effect from July 1, 2015. Further, all new schemes to be launched thereafter too shall depict the Riskometer. Of course, mutual fund companies are free to implement these new guidelines even earlier if they so desire.

Needless to warn you that the erstwhile Colour Code or the new Riskometer are just one SMALL aspect of understanding the overall scheme. 

Do not apply it blindly.

It should be used judiciously along with various other key parameters, while selecting the mutual fund schemes that are most APPROPRIATE for your needs, desires and aspirations. [Must Read: 10 Rules on How to Choose the Best Mutual Fund].

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