Open the factsheet of any Indian mutual fund scheme and, somewhere near the top, you’ll find a small dial-shaped graphic labelled “Riskometer.” Most investors glance past it. It’s worth a closer look.
The Riskometer is a SEBI-mandated visual indicator that every mutual fund scheme must display, showing the level of risk associated with that particular scheme at that point in time. It uses six standard levels: Low, Low to Moderate, Moderate, Moderately High, High, and Very High. Fund houses are required to evaluate and disclose this rating for each scheme, and to update it as the scheme’s underlying holdings change.
The risk level is typically arrived at using a combination of factors such as the type of securities the scheme holds (equity vs. debt), the credit quality of debt holdings, how easily the underlying securities can be bought or sold, and how much the scheme’s value has historically moved up and down. A scheme investing mostly in large, well-established companies will usually sit lower on the Riskometer than one investing in smaller, less-established companies, even though both are equity funds.
The Riskometer is a quick, standardised way to sanity-check whether a scheme’s risk level matches what you were expecting, and whether it fits your own comfort with market ups and downs. It is not, however, a guarantee of a specific outcome, nor does a “Low” rating mean an investment is risk-free — it simply means the scheme is assessed as relatively less volatile than one rated “Very High.”
Because the Riskometer reflects a scheme’s current holdings, it can move over time as those holdings change or as market conditions shift. It’s worth glancing at the current Riskometer periodically, particularly for schemes you’ve held for several years, rather than assuming the level you saw when you first invested still applies today.
We’re happy to walk through what a specific scheme’s Riskometer rating means in practice — get in touch through our Contact page.
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