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Product Labeling in Mutual Fund schemes Risk-o-meter - SEBI - SEBI/HO/IMD/DF3/CIR/P/2020/197

Extract

..... sk value of the scheme portfolio based on the methodology specified in Annexure A, risk level of a scheme as mentioned at Table 11 of Annexure A shall be depicted by risk-o-meter shown above at para 2(a). e. Based on the scheme characteristics, Mutual Funds shall assign risk level for schemes at the time of launch of scheme/New Fund Offer. f. Any change in risk-o-meter shall be communicated by way of Notice cum Addendum and by way of an e-mail or SMS to unitholders of that particular scheme. g. Risk-o-meter shall be evaluated on a monthly basis and Mutual Funds/AMCs shall disclose the Risk-o-meter along with portfolio disclosure for all their schemes on their respective website and on AMFI website within 10 days from the close of each month. h. Mutual Funds shall disclose the risk level of schemes as on March 31 of every year, along with number of times the risk level has changed over the year, on their website and AMFI website. i. Mutual Funds shall publish the following table of scheme wise changes in Risk-o-meter in scheme wise Annual Reports and Abridged summary: Scheme name Risk-o-meter level at start of the financial year Risk-o-meter level at end of the financial year Number .....

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Product Labeling in Mutual Fund schemes Risk-o-meter - SEBI

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..... purpose, credit rating of the instrument as on last day of the month shall be considered. b) Interest Rate Risk Interest rate risk shall be valued using Macaulay Duration of the Portfolio: TABLE 2 Macaulay Duration of the portfolio (years) INTEREST RATE RISK VALUE ≤ 0.5 1 > 0.5 to ≤ 1 2 > 1 to ≤ 2 3 > 2 to ≤ 3 4 > 3 to ≤ 4 5 > 4 6 For the above purpose, Macaulay Duration of an instrument as on last day of the month shall be considered. c) Liquidity Risk For measuring liquidity risk of the schemes, listing status, credit rating, structure of debt instruments is considered. Liquidity risk of the debt securities shall be valued as follows: TABLE 3 Instrument LIQUIDITY RISK VALUE TREPS/G-Sec/AAA rated PSU/SDLs 1 Listed AAA rated debt securities without bespoke structures/ structured obligations, credit enhancements or embedded options* 2 Listed AA+ rated debt securities without bespoke structures/ structured obligations, credit enhancements or embedded options* 3 Listed AA rated debt securities without bespoke structures/ structured obligations, credit enhancements or embedded options* 4 Listed AA- rated debt securities without bespoke structures/ structu .....

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Product Labeling in Mutual Fund schemes Risk-o-meter - SEBI

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..... n credit enhancement embedded options 12 AAA rated debt securities with more than one of the following features*- unlisted bespoke structure structured obligation credit enhancement embedded options 4 AA + rated debt securities with more than one of the following features*- unlisted bespoke structure structured obligation credit enhancement embedded options 5 AA rated debt securities with more than one of the following features*- unlisted bespoke structure structured obligation credit enhancement embedded options 6 AA- rated debt securities with more than one of the following features*- unlisted bespoke structure structured obligation credit enhancement embedded options 7 A+ rated debt securities with more than one of the following features*- unlisted bespoke structure structured obligation credit enhancement embedded options 8 A rated debt securities with more than one of the following features*- unlisted bespoke structure structured obligation credit enhancement embedded options 9 A- rated debt securities with more than one of the following features*- unlisted bespoke structure structured obligation credit enhancement embedded options 10 BBB+ rated debt securities with more than .....

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Product Labeling in Mutual Fund schemes Risk-o-meter - SEBI

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..... > 1% 6 Based on the weighted average of above volatility values of each security (weights being AUM of the security), Volatility Value of a portfolio shall be assigned. If an instrument is traded on multiple stock exchanges, then the most conservative volatility value across stock exchanges for a given month shall be considered. c) Impact Cost (Liquidity Measure) Impact cost shall be considered as a measure for liquidity. Based on the average impact cost of the security for previous three months including the month under consideration following values shall be assigned: TABLE 6 Average Impact Cost of the Security for the month IMPACT COST VALUE ≤ 1% 5 >1 % to ≤ 2% 7 > 2% 9 Based on the weighted average of impact cost values of each security (weights being AUM of the security), impact cost value of a portfolio shall be assigned. If an instrument is traded on multiple stock exchanges, then the impact cost shall be based on average value of impact costs across stock exchanges for a given month. d) For investment in IPOs or recently listed securities, the following process shall be adopted for arriving at weighted average value for Risk-o-meter: Market Capitalisation val .....

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Product Labeling in Mutual Fund schemes Risk-o-meter - SEBI

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..... nt is used for hedging, then the hedging instrument shall not be included for calculating the risk value only if the quantity of derivative instrument is less than or equal to the quantity of underlying/instrument being hedged. If the derivative instrument position is in excess of the underlying then the excess position shall be considered while calculating the risk value. If Interest rate swaps (IRS) are being used for hedging purpose, then IRS shall not be considered for arriving at the risk value. For investment in other derivative instruments, such instruments shall be valued as under: TABLE 9 Daily Volatility of the instrument VOLATILITY VALUE ≤ 1% 5 >1% 6 Volatility calculated above is based on daily close prices of past three months of the instrument. Based on the weighted average of above values of each security (weights being AUM of the security), the risk value shall be assigned to the portfolio. vii. REITs & InvITs Investment by schemes in REITs and InvITs shall be valued as 7 from risk perspective. Based on the weighted average of each security (weights being AUM of the security), the risk value shall be assigned to the portfolio. viii. Gold and Gold related i .....

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Product Labeling in Mutual Fund schemes Risk-o-meter - SEBI

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..... Credit Risk value Interest Rate Risk Value Liquidity risk value A 10% 1 1 B 10% 4 7 C 10% 6 7 D 10% 8 9 5E 10% 3 5 F5 10% 2 5 G 10% 6 7 H 10% 3 4 I 10% 1 2 J 10% 1 1 TOTAL* 3.5 3 4.8 *Total is calculated as weighted average with weights based on AUM of the instrument in the scheme as under: TABLE 14 Parameter Average Value Credit risk 0.1 X 1 + 0.1 X 4 + 0.1 X 6 + 0.1 X 8 + 0.1 X 3 + 0.1 X 2 + 0.1 X 6 + 0.1 X 3 + 0.1 X 1 + 0.1 X 1 3.5 IR Risk 1 x 3 3 LR value 0.1 X 1 + 0.1 X 7 + 0.1 X 7 + 0.1 X 9 + 0.1 X 5 + 0.1 X 5 + 0.1 X 7 + 0.1 X 4 + 0.1 X 2 + 0.1 x 1 4.8 Simple Average 3.8 PORTFOLIO RISK-O-METER VALUE: Simple average of the above three parameters comes out to 3.8 ([3.5+3+4.8]/3) Since the liquidity risk value of 4.8 is higher than the average value of above three parameters i.e. 3.8, the risk value assigned to the scheme will be 4.8. Hence, the risk level as per Risk-o-meter is High. Therefore, risk-o-meter for the abovementioned debt scheme would be High, and shall be as depicted below: B. Equity scheme Consider an Equity scheme having 10 equity securities with following attributes: TABLE 15 Securities held by the scheme Weight as % of AUM Market Cap Volatility Impact cost A .....

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Product Labeling in Mutual Fund schemes Risk-o-meter - SEBI

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..... was used for hedging, it is not included while calculating the risk value. Macaulay Duration of debt scheme portfolio (D, E & F) is 2.5 years Based on the above portfolio, following shall be the valuing of the securities held by the scheme across parameters: TABLE 19 Securities held by the scheme Weight as % of AUM Market Cap Value Volatility Value Impact cost Value A 20% 5 5 5 B 10% 5 6 5 C 10% 7 6 7 Securities held by the scheme Weight as a % of AUM Credit Risk value Interest rate risk value Liquidity risk value D 10% 6 7 E 10% 3 4 F 10% 1 2 G 10% 1 1 EQUITY- Security A, B and C TABLE 20 Securities held by the scheme Weight as % of AUM Market Cap Value Volatility Value Impact cost Value A 20% 5 5 5 B 10% 5 6 5 C 10% 7 6 7 TABLE 21 Parameter Average Value Market Cap 0.2 X 5 + 0.1 X 5 + 0.1 X 7 2.2 Volatility Value 0.2 X 5 + 0.1 X 6 + 0.1 X 6 2.2 Impact cost value 0.2 X 5 + 0.1 X 5 + 0.1 X 7 2.2 Simple Average 2.2 DEBT- Security D, E, F and G TABLE 22 Securities held by the scheme Weight as a % of AUM Credit Risk value Interest rate risk value Liquidity risk value D 10% 6 7 E 10% 3 4 F 10% 1 2 G 10% 1 1 TABLE 23 Parameter Average Value Credit risk 0.1 X 6 + 0.1 X 3 + 0.1 X 1 + .....

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Product Labeling in Mutual Fund schemes Risk-o-meter - SEBI

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