A missed opportunity

AMCs have disclosed the Potential Risk Class matrices for their debt schemes. Only two AMCs have made good use of this mandatory risk disclosure.

In June 2021, SEBI introduced the Potential Risk Class (PRC) Matrix for debt funds. In December 2021, AMCs rolled it out for each of their debt funds. The PRC matrix tells the maximum credit and interest-rate risk a fund can undertake.

On this 3 × 3 matrix, every fund house has placed each of its debt funds in one of the nine cells. For instance, cell A-III means that a fund placed in it will largely stick to high-rated bonds but will have the flexibility to invest in bonds maturing in more than seven years. Therefore, you can expect an A-III fund to be always low on credit risk but potentially high on interest-rate risk. Do note that the risk-class matrix sets the maximum level of credit risk and interest-rate risk a fund will ever take. On an ongoing basis, the fund manager can choose to run the portfolio at a lower level of risk. For example, a fund that sets its PRC at B-II can well run a portfolio at A-I, A-II or B-I levels as well.