Understanding Mutual Funds color coding Norms Meaning

Understanding Mutual Funds color coding Norms Meaning

Brought on March 18, 2013 and regulation came into effect on July 1, 2013 post which all the fund houses have labeled their funds on the basis of the risk levels.


The Securities and Exchange Board of India (SEBI) made it mandatory for fund houses to start labeling funds on the basis of three parameters:
a)nature of scheme
b)investment objective
c)level of risk

Denoted by three different colors.
A color code will give an investor a preliminary idea of the kind of product he is looking to invest in,"

Why SEBI made it mandatory?
a)To put stop on mis-selling in mutual funds
b)Easy understanding of fund scheme and suitability
c)Easy understanding of risk

As per the SEBI regulation, the level of risk will be depicted by the color code boxes:

All common application forms, scheme advertisements and product brochures would have a product label, which will tell you about the
a)nature of the scheme
b)investment objective
c)the kind of instruments it will invest in and the risk it will carry
d)This will be followed by the level of risk in a color box

1-
Blue:
Investor at low risk
Balanced funds
Debt schemes —be it a fixed maturity plan (FMP), liquid fund, income fund or gilt fund

2-
Yellow:
Investor at medium risk
Debt funds
Monthly Income Plans (MIPs)
Hybrid products like a monthly income plan (MIP), or balanced fund will carry a yellow color code

3-
Brown:
Investor at high risk
All categories of equity funds, both domestic and global, have been labeled as brown.
Equity funds — be it an index fund, large-cap fund, small-cap fund or a sectoral fund

Here what we need to understand is that do not depend on Colors and as fund houses decide which color-code or label to give a fund

Just go through your Fund,
Understand the fund, and then invest in Fund
One need to choose a scheme based on his financial goals, time horizon and risk tolerance

Color code will just give you little hint about product
important is one should understand the product or where one is investing his money

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Wednesday, September 25, 2013

Tags – Mutual Fund Color Coding Meaning