TMI BlogProduct Labeling in Mutual Fund schemes Risk-o-meterX X X X Extracts X X X X X X X X Extracts X X X X ..... isk iv. Moderately High Risk v. High Risk and vi. Very High Risk d. The detailed guidelines for evaluation of risk levels of a scheme along with few examples are provided at Annexure A. Pursuant to calculation of risk 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 web ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led below: i. Debt securities a) Credit Risk Debt securities of schemes shall be valued for credit risk as follows: TABLE 1 Credit rating of the Instrument CREDIT RISK VALUE G-Sec/AAA/SDL/ TREPS 1 AA+ 2 AA 3 AA- 4 A+ 5 A 6 A- 7 BBB+ 8 BBB 9 BBB- 10 Unrated 11 Below investment grade 12 Based on the weighted average value of each instrument (weights based on the AUM), credit risk value of the portfolio shall be assigned. The price of debt instrument to be considered for calculating AUM shall include the accrued interest i.e. dirty price. For the above purpose, credit rating of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 Listed BBB+ rated debt securities without bespoke structures/ structured obligations, credit enhancements or embedded options* 9 Listed BBB rated debt securities without bespoke structures/ structured obligations, credit enhancements or embedded options* 10 Listed BBB- rated debt securities without bespoke structures/ structured obligations, credit enhancements or embedded options* 11 AAA rated debt securities with any one of the following features*- unlisted bespoke structure structured obligation credit enhancement embedded options 3 AA + rated debt securities with any one of the following features*- unlisted bespoke structure structured obligation credit enhancement embedded options 4 AA rated debt securities with any one of the following features*- unlisted bespoke structure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 feat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market capitalisation parameter: TABLE 4 Market Cap of the underlying security MARKET CAPITALISATION VALUE Large cap 5 Mid cap 7 Small cap 9 The market capitalisation data as published by AMFI on six-monthly basis shall be considered. Based on the weighted average of the above Market Capitalisation values of each security (weights being AUM of the security), Market Capitalisation Value of a portfolio shall be assigned. b) Volatility Following values shall be assigned to the security based on its volatility: TABLE 5 Daily Volatility of the Security price (based on the past two years price of the security) VOLATILITY VALUE 1% 5 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by its futures instrument, then the XYZ cash market security and short futures position in XYZ security both shall not be considered for arriving at risk value. If the quantity of derivative positions taken for hedging purposes are in excess of the underlying position against which the hedging position has been taken, the excess position shall be included while calculating the risk value. iv. Index Futures and Stock Futures For index and stock futures, following values are to be assigned: TABLE 7 Value for Index / Stock futures INDEX / STOCK FUTURES VOLATILITY VALUE NIFTY near month futures annualized volatility 5 NIFTY near month futures annualized volatility 6 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. v. Index Options and Stock Options For index and stock options, following values are to be assigned: TABLE 8 Value for Index / Stock opt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Schemes: For schemes holding units of other mutual fund schemes, the following values shall be assigned basis the risk-o-meter of underlying schemes: TABLE 10 Risk as per risk-o-meter Value Low 1 Low to Moderate 2 Moderate 3 Moderately High 4 High 5 Very High 6 The risk value for investment in overseas mutual fund units or ETFs shall be 7. Based on the weighted average of each mutual fund scheme held (weights being AUM of the scheme), the risk value shall be assigned to the portfolio. xi. Cash and Net Current Assets: Cash and Net Current Assets, shall be valued as 1 from risk perspective. 4. Risk-o-meter value Based on the above calculations, the risk value arrived upon shall be mapped to the risk level mentioned in the table below and the same may be depicted in the risk-o-meter: TABLE 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 calcula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - - I 10% Small Cap 1.7% 2.5% J 10% Cash - - Based on the above portfolio, following shall be the scoring of the securities held by the scheme across parameters: EQUITY Security A to I TABLE 16 Securities held by the scheme Weight as % of AUM Market Cap Value Volatility Value Impact cost Value A 10% 5 5 5 B 10% 5 6 5 C 10% 7 6 7 D 10% 7 6 7 E 10% 7 6 7 F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Equity A 20% Large Cap 0.01% 0.2% Equity B 10% Large Cap 1.5% 0.3% Equity C 10% Mid cap 2.5% 1.5% Type of security Securities held by the scheme Weight as a % of AUM Credit rating Macaulay Duration Structure Debt D 10% A 2.6 No additional feature/structure Debt E 10% AA 2.1 No additional feature/structure Debt F 10% AAA 2.8 No additional feature/structure TREPS G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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