Red is the colour of danger, or risk even. Risks come in different shades, and SEBI thinks colour coding can say it all for mutual funds.
Investors may soon get a clue to the ‘risks’ of a mutual fund product in a colour code on the offer document; no need to read it “carefully’.
The capital market regulator will shortly issue a guideline on “product labelling” with colour coding for mutual fund products to help investors assess the risk.
SEBI is proposing this as an extension of its investor education agenda. “Very shortly we will issue the guidelines for it,” SEBI Executive Director S. V. Muralidhar Rao told reporters on the sidelines of 6th ICC Mutual Fund Summit here.
The idea is to market a mutual fund product with a pre-determined colour code based on risk assessment, Rao said.
The regulator wants to introduce the labelling of mutual fund schemes to guard investors against mis-selling by the industry.
“The offer documents will have the colour coding according to the risk levels associated with the product,” he added.
The labelling may not stop mis-selling altogether, but the colour code should at least curb the marketing overdrive, feels V. Ramesh, Deputy Chief Executive of Association of Mutual Funds in India.