Sebi comes with new guidelines to evaluate risk value of gold, gold-related instruments

Sebi on Monday came out with a new framework for evaluating the risk level of commodities — gold and gold-related instruments — in which mutual funds are permitted to invest on risk-o-meter. In a circular, the markets regulator said it has been decided that investment in such commodities by the mutual fund schemes will be assigned a risk score corresponding to the annualised volatility of the price of such commodities.

The annualised volatility will be computed quarterly based on the past 15 years’ prices of the benchmark index of a commodity and the risk score for such commodity will be categorized in four levels ranging from ”moderate” to ”very high”, Sebi said in a circular. Annualized volatility of less than 10 percent, 10-15 percent, 15-20 percent and more than 20 percent, will have risk score of 3 (moderate), 4 (moderately high), 5 (high) and 6 (very high), respectively.

Explaining with an example, Sebi said if the price of gold has annualized volatility of 18 percent based on the price of gold of the past 15 years, then gold and gold-related instruments will have a risk value of 5 (high) on risk-o-meter. In October 2020, the regulator had said investment in gold and gold-related instruments by schemes will be valued at 4 from risk perspective.