Market regulator Sebi has issued a guidelines on 'product
labelling' with colour coding for mutual funds (MFs), a move that would help
investors assess the risk associated with the schemes.
The guidelines would be effective from July 1, 2013, for all
existing and forthcoming schemes, Securities and Exchange Board of India (Sebi)
said in a circular yesterday.
As per the norms, product labels carrying details about the
schemes would be disclosed on the front page of initial offering application
forms.
Besides, the labels would have to be placed in common
applications forms and advertisements.
The regulator has also decided up on colour codes to
indicate the level of risk associated with the product.
A blue colour coded box would indicate low risk, yellow
would signify a medium risk, while brown would be represent schemes with high
risk, Sebi said.
"In order to address the issue of mis-selling, a
committee was set up to examine the system of product labelling that would
provide investors an easy understanding of the kind of product/scheme they are investing in and its
suitability to them," Sebi said.
Based on the recommendations by the committee, it has been
decided that all the mutual funds would 'label' their schemes on certain
parameters, it added.
The labels would include details about the nature of schemes
"such as to create wealth or provide regular income in an indicative time
horizon (short/ medium/ long term)".
Moreover, mutual funds would have to state a brief about the
investment objective in a single sentence followed by kind of product in which
investor is investing (equity or debt).
As per the guidelines, mutual funds would also have to
include a disclaimer that "investors should consult their financial
advisers if they are not clear about the suitability of the product".
Sebi said that the product label has to be placed in
proximity to the caption of the scheme in the initial offering -- Key
Information Memorandum (KIM) and Scheme Information Documents (SIDs) -- and
common applications so that they are prominently visible to investors.
Source: http://www.indianexpress.com/news/mutual-fund-products-sebi-issues-colour-codes-labelling/1090399/0
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