Understanding Color Coding In MF

For most of Invesator , Choosing the Right Mutual Fund Can be Confusing, given the various categouries and obscure nomenclature.

All you wanted to know about colour coding 

 

SEBI has asked AMCs to colour code all their existing as well as new schemes from July 1, 2013. Let us clearly understand the concept of colour coding.

What is product labeling or colour coding in mutual funds?

As the name suggests, colour coding depicts the level of risk involved in mutual funds.SEBI has introduced it in the MF industry in an effort to check mis-selling.

On which parameters is colour coding based?

Colour coding is mainly based on two parameters - nature and investment objective of the mutual funds scheme. The nature of scheme defines the time frame of the fund i.e. short, medium or long term scheme while the investment objective indicates the kind of product i.e. equity or debt.

Which do the colour codes depict?

SEBI has mandated three colours - blue, yellow and brown.

Ø Blue colour indicates that the principal of investment is at low risk.

(Category Will include Debt Funds Such as Incoem Fund, Gilt Fund, Dynamic Bond Fund , Fixed maturity Plan Etc.)

Ø Yellow suggests your investment is at medium risk (Moderate Level Of Risk)

( This Category include Hybride Product such as Monthly Income Plan, Balamnce Fund as Well As Multi Asset Fund.)

Ø while brown indicates that your principal investment is at high risk.

(This Category include All Diversiifed Equity Fund, Index Fund 7 Sectorial Funds)

However, colour coding is just an indication of risk level. SEBI is not giving any kind of recommendations to the investors for investments – it is not suggesting that blue colour investments are worthy of investments because it is low risk.

When it will be implemented?

The proposed regulation will be applicable with effect from July 1, 2013. However, AMCs can adopt the regulation before the effective date. All the mutual funds houses have been instructed to label their new as well as existing products as per colour coding guidelines.

What is the purpose of colour coding?

Colour coding enables investors to better understand the risk associated with the product. Now, investors are expected to be better aware of the risk involved in their investments.

How will colour coding be placed in advertisements and information?

SEBI has mandated that the colour coding must be depicted on the front page of initial offering application forms, KIM, SID and common application form. In advertisements, AMC are required to place the colour coding in such a manner that it could be prominently visible to the viewers.

Vcare Investment Services Pvt ltd

201 Sai Sadan, 76/78 Modi Street, 

Fort, Mumbai 400001

022- 66548814/15

www.vcareinvests.com

Follow us @ Facebook : Facebook Journey2Money

Download Our Anroid Application " Journey2Money"  : Android Application