Risk Parameters

1. Risk Parameters and Disclosure Standards

SEBI mandates that investment products and intermediaries disclose risk factors in a transparent and structured format. For example, in public offerings, risk factors must be:

• Ordered in descending order of materiality.
• Presented clearly so that investors can understand potential impacts.
• Disclosed with quantifiable implications where possible, or a statement that quantification isn’t feasible.

For mutual funds and pooled investment products, regulators also require the use of Risk-o-meter disclosures — a standardized graphical representation of risk levels — whenever performance is disclosed to investors.

2. SEBI’s Risk-Return Framework

SEBI has introduced frameworks like risk disclosure standards for derivatives and risk-return verification systems (PaRRVA) to ensure investors understand the nature and intensity of risks before participating in trading or collective investment schemes:

• Risk disclosures for equity derivatives must be shown prominently and acknowledged by traders to proceed.
• Verified risk-return metrics must be displayed with appropriate disclaimers to avoid misleading investors.

These frameworks are designed to enhance investor awareness and protect market integrity.

3. SEBI Compliance Requirements for Intermediaries

Financial intermediaries — such as investment advisers, portfolio managers, and mutual funds — must adhere to SEBI compliance requirements that include:

• a. Risk Profiling & Suitability

  SEBI requires that advisers conduct a documented, structured risk profiling process for each client. Such profiling must be objective, updated periodically, and documented as part of the suitability and advisory disclosures.

• b. Disclosure of Risk-Return Metrics

  All communication and marketing materials must include disclosures on risk parameters, historical returns, and risk-adjusted measures where applicable. This helps investors weigh the potential rewards against risks.

• c. Transparent Client Agreements

  Agreements must include clauses detailing how risk is assessed, how suitability is determined, and the nature of services offered.

4. Investor Protection Through Regulatory Disclosures

SEBI emphasizes investor protection by prescribing that:

• All material risks associated with financial products (e.g., market risk, interest rate risk, credit risk) are disclosed.
• Risk factors must not make speculative assurances about future outcomes.
• Investors are clearly informed that past performance is not indicative of future results.

• Disclosures are balanced, neutral, and free of misleading information.

These disclosures help investors make well-informed decisions and understand the potential downsides along with expected outcomes.

5. Periodic Reporting and Transparency

SEBI’s compliance framework requires regulated entities to publish and update risk disclosures regularly:

• Mutual funds must disclose the Risk-o-meter and related portfolio information on their websites and through associations like AMFI on a monthly basis.
• Investment advisers and intermediaries must maintain records of risk profiling, suitability assessments, and client consent for risk disclosures provided.

6. How Sapling Financials Complies with SEBI Standards

At Sapling Financials, we adhere to SEBI’s risk disclosure and compliance requirements by:

• Providing clear risk disclosures to all clients before advisory engagements.
• Conducting structured risk profiling to align investment recommendations with individual investor risk tolerance and goals.
• Ensuring all client communications include appropriate risk-related disclosures, including potential downsides and performance variability.
• Maintaining and updating disclosure documents in compliance with SEBI guidelines and circulars.