SEBI’s New Risk-O-Meter for Debt Mutual Funds

Key Highlights

• The risk-o-meter can be likened to a report card that is based on the scheme’s portfolio and comes out monthly.
• Here’s how to read the debt funds’ risk class matrix.

A PRCM of AI means the scheme is least risky, and a PRCM of CIII is deemed most risky. This table helps you to understand how much risk the debt funds can take.

Counterintuitively, experts feel the liquid funds which should have been categorized in the AI cell have been placed in cell BI. Liquid schemes of fund houses such as HDFC, ICICI, Axis, and Kotak are in BI PCRM, while IDFC, Quantum, Trust AMC, PPFAS are in PCRM Cell AI. Moreover, many fund houses have chosen to put their schemes in the AIII and BIII blocks.

The PCRM makes it easier to understand the inside working of debt funds.

Bottom Line

This disclosure will be of vital importance in the upcoming days. Fund managers will need to disclose the rating of the debt funds. With the PCRM becoming mandatory, investors can decide to exit these capital appreciation schemes if the rating changes to their dissatisfaction.

Frequently Asked Questions

1. What are liquid funds?

Ans. These are a class of debt funds that invest in treasury bills, commercial papers, etc. They invest in short-term fixed interest money market instruments.

2. What are debt funds?

Ans. These also invest in fixed income instruments like government bonds, corporate bonds, corporate debt securities, and money market instruments.

3. What are overnight schemes?

Ans. These are debt funds that invest in overnight assets or securities with a maturity period of one day.

Disclaimer: This blog is exclusively for educational purposes and does not provide any advice/tips on investment or recommend buying and selling any stock.