The Riskometer is a standardized risk measurement tool introduced by the Securities and Exchange Board of India (SEBI) for mutual fund schemes. Its primary purpose is to help investors assess and understand the risk associated with different mutual fund schemes in a standardized and easily comprehensible manner.
Investors can use the Riskometer as a tool to assess the risk profile of different mutual fund schemes and choose investments that align with their risk appetite and investment objectives. For instance, low-risk funds offer more capital protection but might provide lower returns, while high-risk funds may offer higher potential returns but with a greater chance of volatility and possible losses.
It’s a standardized scale that helps investors understand the risk associated with a particular mutual fund scheme. The Riskometer categorizes risk into six levels: Low, Low to Moderate, Moderate, Moderately High, High, and Very High. Each level indicates the risk level associated with the fund, helping investors make informed decisions based on their risk tolerance and investment goals.
The Riskometer categorizes the risk associated with mutual fund schemes into six levels:
Low Risk: Funds categorized as low risk are typically invested in instruments that have a lower chance of volatility and offer relatively stable returns. These funds are suitable for investors seeking capital protection and are generally less likely to experience significant fluctuations in value.
Low to Moderate Risk: Funds falling into this category carry slightly higher risk compared to low-risk funds. They might include a mix of investments that provide a balance between stability and growth potential. They could be suitable for investors willing to accept slightly more risk for the possibility of higher returns.
Moderate Risk: These funds come with a moderate level of risk and may invest in a combination of instruments that offer a balance between growth potential and stability. Investors opting for moderate-risk funds usually accept a moderate level of fluctuation in their investment’s value.
Moderately High Risk: Funds categorized as moderately high risk tend to have a higher potential for returns, but they also come with increased volatility. They might invest in instruments that could experience fluctuations in value, which might be suitable for investors willing to accept a higher level of risk for potentially higher rewards.
High Risk: Funds falling into this category have a higher chance of significant fluctuations in value. They often invest in instruments that are more volatile and have the potential for higher returns but also pose a higher risk of losses. These funds are suitable for investors with a higher risk tolerance and a long-term investment horizon.
Very High Risk: These funds are associated with the highest level of risk among mutual fund schemes. They invest in instruments with extremely high volatility and the potential for substantial gains or losses. They are generally suitable for highly experienced investors willing to take on considerable risk for potential high rewards.
The Riskometer provides a quick and standardized way for investors to assess the risk profile of mutual fund schemes. It’s essential for investors to consider their risk appetite and investment objectives before choosing mutual funds.