The ‘riskometer’ is a disclosure by the fund house that shows a scheme’s risk level, ranging from low to very high. It is based on multiple factors, including the underlying portfolio, market capitalisation, , liquidity, credit risk and interest rate risk, depending on the fund type.
It helps you compare your own risk appetite with the fund’s risk level and choose an appropriate scheme.
Let’s see what the riskometer means, how to read it and the key points you should know.
What is riskometer in a mutual fund?
The riskometer is a visual indicator that reflects the overall risk associated with a scheme. It provides investors with a standard framework to compare the risk levels of different funds before investing.
Every mutual fund scheme, regardless of whether it invests in equities, debt instruments or a combination of both, discloses its riskometer in the scheme information document, fact sheet and other investor communication.
What are different levels of risk?
The riskometer categorizes mutual fund schemes into six risk levels based on the nature of their underlying investments, market volatility, credit quality and interest rate sensitivity.
1. Low
Funds in this category are considered the least risky among mutual funds. They primarily invest in relatively stable debt instruments and are generally suited for investors who prioritize capital preservation over higher returns.
2. Low to Moderate
These schemes carry a slightly higher degree of risk and aim to generate higher returns than low-risk funds, making them suitable for conservative investors with a medium-term investment horizon.
3. Moderate
Moderate-risk funds strike a balance between stability and growth potential. Investors who are comfortable taking measured risks for better long-term returns may consider such schemes.
4. Moderately High
These funds carry greater exposure to market movements and are appropriate for investors with a relatively higher risk appetite.
5. High
Funds with a high risk level generally have significant exposure to equities. Since stock prices can fluctuate sharply in the short term, these schemes are best suited for investors with a long investment horizon and the ability to tolerate market volatility.
6. Very High
This category represents the highest level of investment risk. These schemes are intended for aggressive investors who understand the possibility of substantial gains as well as sharp losses.
Where to find riskometer and how to read it?
You can find the riskometer or the risk level of a mutual fund scheme in the monthly fact sheets published by asset management companies (AMCs), the Scheme Information Document (SID) or on SEBI-registered mutual fund investment websites.
A pointer on the riskometer indicates the scheme’s current risk level, ranging from low to very high. Mutual fund houses also disclose the riskometer of the benchmark index that the fund tracks. This disclosure helps investors compare whether the fund is more or less risky than its benchmark. Investors should evaluate funds with higher risk than their benchmarks before investing.
Why do no two similar funds necessarily carry same risk level?
Two mutual funds belonging to the same category do not always have identical riskometer ratings. Even within the same fund category, risk levels can vary based on factors such as portfolio composition, duration, credit quality and cash allocation.
For example, both ICICI Prudential Gilt Fund and Franklin India Government Securities Fund are
However, the two schemes have different riskometer ratings. ICICI Prudential Gilt Fund is classified as moderate, while Franklin India Government Securities Fund is rated low to moderate. They both track the Nifty All-Duration G-Sec Index, whose riskometer is marked as moderate.
One reason for this difference is their portfolio allocation. ICICI Prudential Gilt Fund has 99.02% of its assets invested in debt securities and 0.98% in cash and cash equivalents. While Franklin India Government Securities Fund has around 45.93% in debt securities and 54.07% in cash and cash equivalents. Such variations in portfolio positioning can influence the overall risk assessment of a mutual fund scheme.
Disclaimer: This is purely for educational/ informational purposes and should not be taken as any sort of investment advice. Always consult a SEBI-registered advisor before making any investment decisions.