TaxTMI 
TaxTMI 
Potential Risk Class Matrix for debt schemes based on Interest Rate Risk and Credit Risk
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....und Schemes", has specified scheme categorization based on scheme characteristics. 2. Further, SEBI, vide circular SEBI/HO/IMD/DF3/CIR/P/2020/197 dated October 5, 2020 on "Product Labeling in Mutual Funds-Risk-o-Meter", has 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....
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....into a cell resulting in a risk (in terms of credit risk or duration risk) which is higher than the maximum risk specified for the chosen PRC cell, shall be considered as a fundamental attribute change of the scheme in terms of regulation 18(15A) of SEBI (Mutual Fund) Regulations, 1996. 10. Further, the Mutual 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 specifi....
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....n to the AUM. The value of the debt instrument to be considered for calculating AUM shall include the accrued interest i.e. dirty price of the instrument. 14. The debt securities of schemes are to be assigned a value for credit risk in the following manner: TABLE 1 Instrument CREDIT RISK VALUE (CRV) G-Sec/ State development loans/ Repo on Government Securities/TREPS / Cash 13 AAA 12 AA+ 11 AA 10 AA- 9 A+ 8 A 7 A- 6 BBB+ 5 BBB 4 BBB- 3 Unrated 2 Below investment grade 1 a. For investment by mutual funds in instruments having short term ratings, the credit risk value shall be based on the low....
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.... Risk Relatively High interest rate risk and Relatively High Credit Risk 16. For example, if an open ended Short Duration Fund wants to invest in securities such that its Weighted Average Macaulay Duration is less than or equal to 3 years and its Weighted Average Credit Risk Value is 10 or more, it would be classified as a scheme with 'Moderate Interest Rate Risk and Moderate Credit Risk'. The position of the scheme in the matrix shall be displayed by the AMCs as under: TABLE 3 Potential Risk Class Credit Risk → Relatively Low (Class A) Moderate (Class B) Relatively High (Class C) Interest Rate Risk↓ Relatively Low (Class I) &n....
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.... governments, the cap for Class I and Class II pertaining to maximum residual maturity of each instrument shall not be applicable. 20. With regards to existing holding of perpetual bonds by debt schemes as on the date of this circular, (including debt instruments with special features viz. subordination to equity which absorbs losses before equity capital and /or convertible to equity upon trigger of a pre-specified event for loss absorption, for instance Additional Tier I bonds issued under Basel III framework), it has been decided that AMCs shall: a. reckon such bonds as having residual maturity as outlined in SEBI circulars SEBI/HO/IMD/DF4/CIR/P/2021/034 dated March 22, 2021 and SEBI/HO/IMD/DF4/CIR/P/2021/032 date....
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....re-existing holding of aforementioned perpetual bonds by debt schemes as on the date of this circular. 22. Fresh investments in perpetual bonds (including Additional Tier 1 bonds) can only be made in schemes that are in Class III. 23. For the debt instruments with call / put options, the deemed maturity will be in terms of SEBI Circular No. MFD/CIR/8/92/2000 dated September 18, 2000 and SEBI Circular No. SEBI/HO/IMD/DF4/CIR/P/2019/102 dated September 24, 2019. For instruments with interest rate reset dates, the interest rate reset date shall not be treated as deemed maturity. 24. The dynamic aspect of the risk of each scheme would be separately reflected in the Risk-o-Meter of the scheme, which would be published ....