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Potential Risk Class Matrix for debt schemes based on Interest Rate Risk and Credit Risk - SEBI - SEBI/HO/IMD/IMD-II DOF3/P/CIR/2021/573

Extract

..... as advised the Mutual Funds to indicate risk taken by the scheme as on the end of the month. 3. The Risk-o-Meter as specified in the abovementioned circular dynamically captures the actual risk in the portfolio taken by the fund manager. 4. For investors to take informed decisions, there is a need to know the following while investing in a mutual fund scheme: a. current risk level as indicated by Risk-o-Meter and b. maximum risk the fund manager can take in the scheme 5. While 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. 6. Based on the recommendation of the Mutual Fund Advisory Committee .....

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Potential Risk Class Matrix for debt schemes based on Interest Rate Risk and Credit Risk - SEBI

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..... Funds shall inform the unitholders about the abovementioned classification in one of the 9 cells and subsequent changes, if any, through SMS and by providing a link on their website referring to the said change. 11. For new debt schemes, the AMC shall choose the PRC cell at the time of filing of Scheme Information document (SID) with SEBI. 12. Each scheme will continue to comply with the requirements specified in SEBI circulars on categorization of schemes and those specified in this circular. 13. The thresholds for the values of the interest rate risk and the credit risk dimensions would progress in a flexible manner for drawing out the categorization matrix. The thresholds across the matrix would determine the maximum interest rate risk .....

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Potential Risk Class Matrix for debt schemes based on Interest Rate Risk and Credit Risk - SEBI

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..... 1 a. For investment by mutual funds in instruments having short term ratings, the credit risk value shall be based on the lowest long term rating of an instrument of the same issuer as shown above (in order to follow a conservative approach) across credit rating agencies. However, if there is no long term rating of the same issuer, then based on credit rating mapping of CRAs between short term and long term ratings, the most conservative long term rating shall be taken for a given short term rating. 15. For the purpose of nomenclature, the 3 x 3 matrix shall have the following syntax for each matrix cell: TABLE 2 Max Credit Risk of scheme→ Class A(CRV >=12) Class B (CRV >=10) Class C (CRV <10) Max Interest Rate Risk of the sc .....

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Potential Risk Class Matrix for debt schemes based on Interest Rate Risk and Credit Risk - SEBI

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..... dit Risk which the aforesaid scheme can take would have Credit Risk Value of 10 or more. Both the maximum interest rate risk and maximum credit risk would be reflected in the above matrix. By virtue of its placement in this position, the scheme would have the flexibility to take interest rate risk and credit risk below the maximum risk as stated above in Table 2. 18. The type of the scheme shall be modified to include the above cell selection. For the above example, it shall be as under: An open ended short term debt scheme investing in instruments with Macaulay duration between 1 year and 3 years (please refer to page no. )#. A moderate interest rate risk and moderate credit risk. 19. For a scheme placing itself in Class I (i.e. MD <=1 .....

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Potential Risk Class Matrix for debt schemes based on Interest Rate Risk and Credit Risk - SEBI

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..... ipulated level, then it would be treated as a passive breach and a suitable period may be permitted for regularizing the passive breach. Until regularization, the scheme cannot make any investments that would effectively increase the MD of the portfolio. Calculation of MD for this purpose shall be post exclusion of such instruments having special features. To clarify, if a scheme AUM is INR 100 crores, of which INR 10 crores is in such instruments with special features, the base for calculation of MD for the purpose of PRC will be INR 90 crores. The scheme will continue to maintain the threshold of the cell in which it is positioned on INR 90 crores in line with Class I &/or Class II categorization in line with this circular. 21. AMCs s .....

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Potential Risk Class Matrix for debt schemes based on Interest Rate Risk and Credit Risk - SEBI

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..... lication form, Scheme Information Documents (SID) and Key Information Memorandum (KIM). b. common application form - along with the information about the scheme. the PRC matrix with appropriate mark with respect to (a) & (b) above shall be placed in proximity to the caption of the scheme and shall be prominently visible and in bold. c. Scheme advertisements - placed in manner by the Mutual Fund and its distributors so as to be prominently visible to investors. Applicability of the circular 28. This circular shall come into force with effect from December 1, 2021, for all the existing debt schemes and all the debt schemes to be launched on or thereafter. However, mutual funds may at their discretion, choose to adopt the provisions of thi .....

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Potential Risk Class Matrix for debt schemes based on Interest Rate Risk and Credit Risk - SEBI

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