The SEBI has released a consultation paper proposing a mandatory, colour-coded “Credit Risk-o-Meter” for debt securities to help investors assess and compare credit risks. This mechanism is based on the existing “Risk-o-Meter” framework for Mutual Funds (MFs), which classifies investment risk into six levels from “Low” to “Very High”.
The new meter will map the conventional credit rating scale (AAA to D) into six visual categories: Lowest credit risk, Very low credit risk, Low credit risk, Moderate credit risk, Moderate risk of default, and High to very high risk of default.