Mutual fund products will be labeled from 1stJuly

According to a SEBI circular issued SEBI yesterday, mutual fund houses are required to label products from 1^st July. The regulator feels that it would provide investors an easy understanding of the kind of product/scheme they are investing in and its suitability to them.  SEBI has taken this move to curb mis-selling.

The regulator had set up a committee to examine the system of product labeling. The committee has recommended that all the mutual funds shall ‘label’ their schemes according to various parameters.

The AMCs are supposed to mention the level of risk, depicted by colour code boxes mentioned below.  The colour codes shall also be described in text beside the colour code box.

• Blue – principal at low risk.

• Yellow – principal at medium risk.

• Brown – principal at high risk.

The fund houses are also supposed to mention the nature of scheme, such as short/medium/long term and a singled sentenced brief on the kind of product – equity/debt.

According to the circular, the labeling is supposed to be printed on the front page of initial offering application forms, KIM, SID and in common application form along with the information about the scheme.  In the scheme advertisements, the labeling is to be placed in a manner so that it is prominently visible to investors. The fund house should also print a disclaimer to the effect that investors should consult their financial advisers if they are not clear about the suitability of the product

“I don’t feel it will make much difference to investors. High or low risk doesn’t make much difference to investors as they are unaware about the complete details of the product.  I feel investors need to understand their goals before investing,” says Lovaii Navlakhi, IFA from Bangalore.