Riskometer

The riskometer is a standard visual that every mutual fund scheme in India must display. It rates a scheme’s risk on six levels: Low, Low to Moderate, Moderate, Moderately High, High and Very High. The level is based on the scheme’s actual portfolio — factors such as company size, volatility, credit quality, interest rate sensitivity and liquidity — and fund houses review it every month.

Why it matters

It gives a quick, comparable first read on how much risk a scheme takes, in a format that looks the same across fund houses. Scheme documents, factsheets and advertisements carry it, along with the riskometer of the scheme’s benchmark.

How to read it

• Compare it with your horizon. A Very High rating can fit a long-term goal and a tolerance for deep, temporary falls; it is a poor fit for money needed next year.
• Watch for changes. Because it is reviewed monthly, a scheme’s level can move as its portfolio changes, and fund houses must disclose changes.
• Compare scheme and benchmark riskometers to see whether a scheme takes more risk than its index.

Common misconceptions

• “Low risk means no loss.” Even Low-rated schemes are market-linked and can lose value.
• “The riskometer tells me if a fund suits me.” It describes the scheme, not your situation. Suitability depends on your goals, horizon and other holdings.
• “Same level, same risk.” Two Very High schemes — a large-cap fund and a sector fund — can behave very differently.

In India: SEBI introduced the six-level riskometer, including the Very High level, from January 2021, with monthly evaluation and disclosure.