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Mutual Funds (MF) Risk-o-meter becomes effective 

  • IASbaba
  • January 15, 2021
  • 0
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Mutual Funds (MF) Risk-o-meter becomes effective 

Part of: GS Prelims and GS-III – Ecology; Biodiversity

In news 

  • Securities and Exchange Board of India’s (SEBI’s) decision on the “risk-o-meter” came into effect on January 1.

Key takeaways 

  • SEBI has made it mandatory for mutual fund houses to characterise the risk level of their schemes on a six-stage scale from “Low” to “Very High”.
  • All mutual funds shall, beginning January 1, assign a risk level to their schemes at the time of launch, based on the scheme’s characteristics.
  • The risk-o-meter must be evaluated on a monthly basis.
  • Fund houses are required to disclose the risk-o-meter risk level along with the portfolio disclosure for all their schemes on their own websites as well as the website of the Association of Mutual Funds in India (AMFI) within 10 days of the close of each month.
  • Any change in the risk-o-meter reading with regard to a scheme shall be communicated to the unit-holders of that scheme.
  • The move will help investors to make a more informed investment decision.

Important value additions 

The Securities and Exchange Board of India (SEBI)

  • It is the regulator of the securities and commodity market in India owned by the Government of India. 
  • It was established in 1988 and given statutory status through the SEBI Act, 1992. 
  • SEBI is responsible to the needs of three groups:
    • Issuers of securities
    • Investors
    • Market intermediaries
  • Functions: 
    • Quasi-legislative – drafts regulations 
    • Quasi-judicial – passes rulings and orders 
    • Quasi-executive – conducts investigation and enforcement action 
  • Powers:
    • To approve by−laws of Securities exchanges.
    • To require the Securities exchange to amend their by−laws.
    • Inspect the books of accounts and call for periodical returns from recognised Securities exchanges.
    • Inspect the books of accounts of financial intermediaries.
    • Compel certain companies to list their shares in one or more Securities exchanges.
    • Registration of Brokers and sub-brokers

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