The Riskometer is a SEBI-mandated risk label on all mutual fund schemes — displayed as a dial from 'Low' to 'Very High Risk', helping investors quickly understand a fund's risk level.
SEBI introduced the Riskometer in 2015 and revised it with more granular levels in January 2021. It categorises every mutual fund scheme into one of six risk levels based on its portfolio characteristics: Low, Low to Moderate, Moderate, Moderately High, High, Very High. The classification is algorithm-driven: SEBI prescribes how to score the portfolio based on credit quality, duration, market cap, liquidity, and volatility. AMCs must display the Riskometer prominently on all scheme documents and advertisements.
The Riskometer is like a car's speedometer — it tells you how fast (risky) this fund drives. A Liquid Fund shows 'Low Risk' on the dial. A Small Cap Fund shows 'Very High Risk.' Before investing in any mutual fund, check the Riskometer — it's the quickest indicator of what you're signing up for. SEBI also mandates a monthly update in case the portfolio composition changes the risk level.
SEBI scores each security in the portfolio on credit, interest rate, liquidity, market cap, and volatility dimensions.
Portfolio-level risk score determines which Riskometer category the fund falls in.
AMCs must review and update Riskometer monthly based on current portfolio.
Any change in Riskometer level requires communication to all existing investors.