What does ‘Product Labeling’ mean to a mutual fund investor?

Posted On Friday, Mar 14, 2014

With the festival of colours just round the corner, it is that time of the year when we fill our own and others lives with bright colours. It is the time to forget all differences of caste and creed and enjoy the festival of colours – Holi. This Holi, while you get ready to paint the world with the colours of joy and get drenched in fun, we hope you have taken a closer look at the colours in your portfolio.

The market regulator SEBI, in an effort to curb mis-selling and help investors understand the underlying risk of the fund they are investing had come up with the concept of “Product Labeling”.

All the mutual funds have been asked to ‘Label’ their schemes to indicate the level of risk associated with the product, depending upon the chances that investors could lose their principal by investing in the Scheme. If there is a high probability of that then the scheme is labeled ‘Brown’.

Colours that depict the level of risk are as under:

Blue – principal at low risk.
Yellow – principal at medium risk.
Brown – principal at high risk.

At Quantum Mutual Fund, we have been following product labeling and have labeled our schemes accordingly.

Below are the list of some of our funds with their product labeling:

Name of the SchemeThis product is suitable for investors who are seeking*
Quantum Long Term Equity Fund
(An Open-ended Equity Scheme)
Long term capital appreciation
• Investments in equity and equity related securities of
   companies in S&P BSE 200 index.
• High Risk (BROWN)
Quantum Liquid Fund
(An Open- ended Liquid Scheme)
• Income over the short term
• Investments in debt / money market instruments.
• Low Risk (BLUE)
Quantum Multi Asset Fund
(An Open-ended Fund of Funds Scheme)
• Long term capital appreciation and current income
• Investments in portfolio of schemes of Quantum
   Mutual Fund whose underlying investments
   are in equity and equity related securities
   of companies, debt and money market instruments
   and physical gold.
• Medium Risk (YELLOW)

* Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

Note: Risk is represented as:

(BLUE) investors understand that their principal will be at low risk (YELLOW) investors understand that their principal will be at medium risk (BROWN) investors understand that their principal will be at high risk

Therefore this brings us to a very important question, how many of these colours do you have in your portfolio?
Do you see your portfolio mostly brown or blue or yellow?

In that case, as a prudent investor you need to understand that diversification will not only add colour to your portfolio but will help you balance out risk. While your asset allocation will depend on your risk bearing appetite and your age, but make sure your portfolio is an appropriate mix of brown, blue and yellow schemes.

In this way even if the scheme with highest risk underperforms, the schemes with medium or low risk might rescue your portfolio . Therefore, in an effort to diversify your risk and balance out the risk factor you need to have diverse colours in your portfolio.

You could look for Product Labeling on the front page of initial offering application forms. Besides, the labels would also have to be placed in common applications forms, Key Information Memorandum (KIM) and Scheme Information Documents (SIDs) and advertisements. Please look for these colours and know what they stand for before you decide to invest in a particular fund.

This Holi we encourage you to review your investments and add sufficient colour for a balanced and healthy portfolio. However we strongly suggest you to consult with your financial advisor before proceeding with any investment decision.

Disclaimer, Statutory Details & Risk Factors:
The views expressed here in this article are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

Risk Factors: Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
Please visit – www.QuantumMF.com to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

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