Mutual fund offerings will soon come with colour codes to remind investors the kind of risk they may be taking.
A scheme that bets on high-risk assets will be marked red while yellow will stand for moderate risk & green for low-risk plans. The colour code will apply to MF products across equity & debt. Often names of MF schemes could confuse investors who put money without understanding the risk involved.
The move to label schemes will acquaint them with the risk profile of a scheme, said the chief investment officer of a fund house backed by a state-owned bank. A panel constituted by the industry lobby Association of Mutual Funds of India (AMFI) has put forward the suggestion to capital market regulator SEBI.
The proposal is being considered by the regulator. As per the proposal, offer documents, application forms, account statements, advertisements will carry the colour coding. A red code will be assigned to most mid-cap and large-cap funds, yellow will be displayed on large-cap & debt-focused funds and green colour will be confined to debt-focused funds, said a industry source.
The suggestion assumes significance with the regulator SEBI and MF Body AMFI working to popularise the Rajiv Gandhi Equity Savings Schemes (RGESS).
Under RGESS, first-time equity investors who earn less than Rs. 10 lakh a year can invest up to Rs. 50,000 in approved stocks & mutual fund schemes and claim income tax deduction on 50 % of the amount under Section 80 CCG of the Income Tax Act. This is over and above the Rs. 1- lakh limit under Section 80 C. This will be an important step as most retail investors are not aware of the risks associated with equity products, said Mr. Jimmy Patel, CEO, Quantum Asset Management Company.
The mutual fund body AMFI feels that there is an increasing need for investor education so that retail investors find mutual funds products attractive to invest. At present, less than 5 % of total household savings flow into MFs whose combined assets is close to Rs. 8 lakh crore.There are nearly 1,200 MF schemes across various asset management companies & retail investors are confused as there are no clear demarcations. A colourcoding system will give retail investors new confidence, said Mr. Akshay Gupta, MD and CEO, Peerless Funds Management Company.
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