What does a riskometer in a mutual fund mean?
The riskometer is a standardised risk measurement scale introduced by the market regulator Securities and Exchange Board of India (Sebi) for mutual fund schemes. As per regulatory norms, all MF schemes have to display the riskometer upfront and clearly so that investors know the risk associated with that particular fund.How is the riskometer determined for mf schemes?
The level of risk associated with any scheme is evaluated every month. It considers the securities in which the scheme invests along with the AUM taken on the last day of the month. As per regulatory guidelines, a scheme’s underlying securities are assigned a value for parameters like volatility and other parameters based on which the risk level is determined.
Where can investors find the riskometer for a scheme?
Investors can find the riskometer on the front page of a new fund application form, scheme information document (SID), key information memorandum (KIM), and also in the scheme advertisements.
How does the riskometer classify risk?
The riskometer classifies risk into six different categories:
a) Low Risk: Funds that come under this category are suitable for investors willing to take minimal risk. Typically, returns here are low. Overnight mutual fund schemes and arbitrage schemes come under this category.
b) Low to Moderate Risk: These suit investors who have a medium-to-long-term view and are willing to take a small risk. Typically, debt fund categories like ultra-short duration funds and money market funds come under this category.
c) Moderate Risk: This is ideal for investors who are ready to take moderate risk to earn slightly higher returns. Medium-term funds, corporate bond funds and banking & PSU debt funds fall in this category.
d) Moderately High Risk: These schemes are meant for investors who are ready to accept some uncertainty and greater volatility with the objective of achieving higher returns. Equity savings and credit risk funds are in this category.
e) High Risk: Meant for aggressive investors who are willing to take high risks with the objective of maximising their profits, and know that there is a chance of a loss. Gold and silver funds, which can be volatile, are in this category.
f) Very High Risk: These are extremely risky funds that invest in domestic stocks or international stocks, and are typically meant for investors wanting to take high risk for high returns. Equity funds, equity and bond funds, sectoral funds, dynamic asset allocation funds and international funds fall in this category.
What does a fund house do when there is a change in riskometer?
Whenever there is a riskometer change, the fund house has to send a communication to investors by publishing it on its website, in newspapers, and sending emails /SMS to investors.
