SEBI’s Risk-O-Meter

SEBI’s Risk-O-Meter is definitely a huge improvement on the earlier risk grading method adopted by it for securities and debt funds. As in earlier method the whole category of fund was rated letting the each constituent of the portfolio be unnoticed. But now what is rated is not fund category but the fund

itself and that too on the basis of it’s ingredients.

The earlier rating system as adopted in 2015 were measuring on five risk levels which has now in 2021 been raised to six levels– Low, Low to Moderate, Moderate, Moderately High, High and |Very High. Now the debt fund will be rated on three parameters – Credit (on 1-12 scale), Interest rate (on 1-6 scale) and Liquidity (on 1-14 scale). Portfolio risk will be the simple average of this three. Interestingly the interest rate risk measurement will be based on Macaulay Duration which is weighted average of maturity period of each ingredient of the portfolio.

So definitely an investor would gain more insight based on deeper understanding of fund’s likely behaviour.

And last but not the least, as the fund managers may keep changing the portfolio within the categories, the rating will also change each time. So an investor is expected to keep a keen watch on the dynamic rating which happened to be static earlier.

(Author - Hemant K Das)