This July onwards, mutual fund schemes in India will stop using the three colour codes to tell investors how risky the scheme is. In its latest order, market regulator SEBI has asked fund management companies to adopt to a five-level speedometer-like indicator to depict the risk involved in various plans. The new “riskometer” will have the following levels: Low — principal at low risk; Moderately low — principal at moderately low risk; Moderate — principal at moderate risk; Moderately high — principal at moderately high risk; and High — principal at high risk. Currently, there are only three risk grades: blue — principal at low risk; yellow — at medium risk; brown — principal at high risk.
Usually, fixed maturity plans, gilt and income funds fall in the blue category while balanced funds and unit-linked insurance plans are graded yellow. Pure equity funds carry the brown colour code for risk. The new guidelines comes into effect from July 1 to all existing and new schemes. However, the fund houses may implement it sooner as well. The SEBI had introduced product labelling in 2013 to address miss-selling, protect the investors' interests and promote the development of the securities market. The risk label had to be disclosed on the front page of the scheme information document, the common application form and advertisements.