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TMI BlogPotential Risk Class Matrix for debt schemes based on Interest Rate Risk and Credit RiskX X X X Extracts X X X X X X X X Extracts X X X X ..... haracteristics. 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 5. While the Risk-o-Meter stipulated by SEBI reflects the current risk of the scheme at a given point in time, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 specified in SEBI circulars on categorization of schemes and those specified in this circular. 13. The thresholds for the values of the interest rate risk and the credit risk dimensions w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 lowest long term rating of an instrument of the same issuer as shown above (in order to follow a conservative approach) across credit rating agencies. However, if there is no long term rating of the same issuer, then based on credit rating mapping of CRAs between short term and long term ratings, the most conservative long term rating shall be taken for a given short term rating. 15. For the purpose of nomenclature, the 3 x 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he maximum interest rate risk which the aforesaid scheme can take would be in terms of the Weighted Average Macaulay Duration of the scheme and the same shall be ≤ 3 years. The maximum Weighted Average Credit Risk which the aforesaid scheme can take would have Credit Risk Value of 10 or more. Both the maximum interest rate risk and maximum credit risk would be reflected in the above matrix. By virtue of its placement in this position, the scheme would have the flexibility to take interest rate risk and credit risk below the maximum risk as stated above in Table 2. 18. The type of the scheme shall be modified to include the above cell selection. For the above example, it shall be as under: An open ended short term debt scheme investing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in terms of SEBI circulars SEBI/HO/IMD/DF4/CIR/P/2021/034 dated March 22, 2021 and SEBI/HO/IMD/DF4/CIR/P/2021/032 dated March 10, 2021. ii. if the scheme places itself in Class I or II, and the MD exceeds the stipulated level, then it would be treated as a passive breach and a suitable period may be permitted for regularizing the passive breach. Until regularization, the scheme cannot make any investments that would effectively increase the MD of the portfolio. Calculation of MD for this purpose shall be post exclusion of such instruments having special features. To clarify, if a scheme AUM is INR 100 crores, of which INR 10 crores is in such instruments with special features, the base for calculation of MD for the purpose of PRC will b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove mentioned matrix by December 1, 2021. Disclosure of the matrix 27. The aforesaid matrix along with the mark for the cell in which the of scheme resides shall be disclosed on: a. front page of initial offering application form, Scheme Information Documents (SID) and Key Information Memorandum (KIM). b. common application form - along with the information about the scheme. the PRC matrix with appropriate mark with respect to (a) & (b) above shall be placed in proximity to the caption of the scheme and shall be prominently visible and in bold. c. Scheme advertisements - placed in manner by the Mutual Fund and its distributors so as to be prominently visible to investors. Applicability of the circular 28. This circular shall com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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