The Securities and Exchange Board of India on 7th June 2021 has directed all the mutual funds to classify all debt schemes in terms of a Potential Risk Class matrix consisting of parameters based on maximum interest rate risk (measured by Macaulay Duration (MD) of the scheme) and maximum credit risk (measured by Credit Risk Value (CRV) of the scheme)
The circular will come into force with effect from 1st December 2020 for all the existing debt schemes and all the debt schemes to be launched on or thereafter.
The Risk-o-Meter stipulated by SEBI reflects the current risk of the scheme at a given point in time, there is also a need for disclosure of the maximum risk the fund manager can take in the scheme.
For the purpose of alignment of the existing schemes with the provisions of this circular, each scheme shall be placed in one of the 9 cells specified, while retaining their existing scheme on ‘Categorization and Rationalization of Mutual Fund Schemes.
The 9-cell table or matrix will display the interest and credit risk associated with the scheme. This will provide relevant information to investors to make an informed decision while making decision low risk to moderate risk to high risk in combination of credit and interest rate risks.
