TaxTMI 
TaxTMI 
Product Labeling in Mutual Fund schemes – Risk-o-meter
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.... iii. Moderate Risk 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....
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....r 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 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 ris....
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....the following features*- • unlisted • bespoke structure • structured obligation • credit enhancement • embedded options 6 A+ rated debt securities with any one of the following features*- • unlisted • bespoke structure • structured obligation • credit enhancement • embedded options 7 A rated debt securities with any one of the following features*- • unlisted • bespoke structure • structured obligation • credit enhancement • embedded options 8 A- rated debt securities with any one of the following features*- • unlisted • bespoke structure • structured obligation • credit enhancement • embedded options 9 BBB+ rated debt securities within investment grade with any one of the following features*- • unlisted • bespoke structure • structured obligation • credit enhancement • embedded options 10 BBB rated debt securities within investmen....
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....11 BBB rated debt securities with more than one of the following features*- • unlisted • bespoke structure • structured obligation • credit enhancement • embedded options 12 BBB- rated debt securities with more than one of the following features*- • unlisted • bespoke structure • structured obligation • credit enhancement • embedded options 13 Below investment grade and unrated debt securities 14 *Or any other structure / feature which increase the liquidity risk of the instrument. • Liquidity Risk Value of a portfolio shall be assigned based on the weighted average of such values (weights based on the AUM) of each instrument. • For the above purpose, instruments held by the scheme as on last day of the month shall be considered. d) Risk value for the debt portfolio shall be simple average of credit risk value, interest rate risk value and liquidity risk value. However, if the liquidity risk value is higher than the average of credit risk value, liquidity risk value and interest rate risk value then....
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....s 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 value: Market capitalisation of a security as on the last trading day of the month shall be compared with that of the market capitalisation of the threshold for large cap, mid cap and small cap as published by AMFI and then market capitalisation parameter of risk shall be valued based on the Table 4 mentioned above. • Volatility value: For the first three months of trading of a security, the value for volatility shall be assigned as 6. From the subsequent months, volatility shall be calculated based on the available security prices as mentioned at Table 5 above. • Impact cost value: For the first three months of trading of a security, the impact cost value shall be assigned as 5. From the subsequent month, impact cost value shall be as mentioned in Table 6 above. e) Risk value for equity portfolio shall be....
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....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 instruments: • Investment in Gold and gold related instruments by schemes shall be valued as 4 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. ix. Foreign Securities • Investment by schemes in foreign securities 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 ....
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.... 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 d....
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....sk-o-meter for the abovementioned equity scheme would be Very High, and shall be as depicted below: C. Multi asset scheme: • Consider a Multi Asset category scheme having 10 securities with following attributes: TABLE 18 Type of security Securities held by the scheme Weight as % of AUM Market Cap Volatility Impact cost 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 10% - - - Gold ETF H 10% - - - REITS I 10% - - - Interest rate swap (IRS) J -20% • As interest rate swap instrument was used for hedging, it is not included while calculating the risk value. • Macaulay Duration of debt scheme....