Mutual Funds Schemes: Sebi Calls for Interest, Credit Risk-Based Classification

Markets regulator Securities and Exchange Board of India (Sebi) has directed mutual funds to classify all debt-related schemes on their platform as potential risk class matrix, on the basis of their interest and credit risk.

To enable this, a display table has been made mandatory from December 1, 2021 for all such schemes, Sebi said in a circular.

“It has been decided that all debt schemes also be classified 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),” Sebi said.

To align existing schemes with the provisions of the new framework, each scheme will be inserted in one of the nine cells specified by the regulator, while retaining their existing scheme category as specified under ‘Categorisation and Rationalisation of Mutual Fund Schemes'.

This decision was taken on the basis of the recommendation of the Mutual Fund Advisory Committee (MFAC) and deliberations with the mutual fund industry.

Sebi also directed that asset management companies will have freedom to insert single or multiple schemes in any cell of the Potential Risk Class matrix.