In a bid to help investors assess the risk associated with mutual funds schemes, the Securities & Exchange Board of India (Sebi) has issued a circular on product labelling for such schemes.

As per the new guidelines, all the mutual funds will have to mention the nature of scheme such as to generate wealth or provide regular income in a pinpointing time horizon (short/medium/long term).

Secondly, the issuers of the product will have to brief investors about the objective of investment in a single line sentence, and also about the sort of product in which investor is investing such as equity or debt.

Thirdly, they will have to depict the level of risk by using colour code boxes: A blue box would indicate that principal is at low risk, while yellow and brown boxes would indicate that principal at medium and high risk, respectively.

The capital market regular said that, based on the recommendations by the committee that was set up to make suggestions to address the issue of mis-selling, it had been decided that all the MFs would ‘label’ their products on the above mentioned parameters.

Analysts welcomed the regulator’s move, saying the investor friendly initiative would protect investors from becoming victims of mis-selling.