Debt funds are prone to three kinds of risks - interest rate fluctuations (the longer the bond maturity, greater the impact), credit risk (the lower the credit rating of a security, higher the potential for default in repayment) and liquidity risk (the possibility of a fund not being able to find a buyer for a bond it owns when it wants to sell it). A few months back SEBI had introduced the upgraded risk-o-meters (read about it here) to help investors get an aggregated view of a fund encompassing these three risks. This time, SEBI has gone further and has asked AMCs to specify the maximum level of risk a fund will take at any time in future in terms of interest rate and credit risks. This should help investors make a more informed investment decision as they'll know in advance what kind of risks a fund can subject them to going forward. For this, the fund companies are required to place each of their debt funds in one of the cells of a 3x3 risk matrix (see image below). For example, if a fund chooses to place itself in cell A-II, it means investors can expect it to always invest in bonds which are low on credit risk but can have upto a moderate level of impact from changes in interest rates. Once the AMC specifies the maximum level in this manner, a brea
Buy, hold, or switch. Get the call.
How's my portfolio doing? What do I need to fix? Where should I invest next? Fund Advisor answers each one. The Advisor Note every Saturday. A live session with Dhirendra Kumar every second Saturday.
No commissions. No conflicts. Since 1991.
See Plans
Already a subscriber ?Log In
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
