Six months since the potential risk class (PRC) norms issued by the Securities and Exchange Board of India (SEBI) were implemented, mutual funds appear to be using the matrix to take buffer in terms of their risk capacity rather than align to the reported PRCs.

The norms, issued by the capital market regulator in June 2021 and implemented in December, were aimed at improving risk disclosures in a bid to obviate the credit and liquidity crises that have plagued debt mutual funds in recent years. With those crises still fresh in mind, investors remain wary of higher risk in debt funds. And though corporate balance sheets have improved since then, mutual funds continue to shy away from taking higher risk. From the funds’ point of view, playing conservative ensures they can invest as and when an opportunity emerges. For investors, however, it becomes imperative to look at both reported PRCs and actual PRCs.