Identify your risk through a risk-o-meter, but don’t make it the sole criterion

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The Securities Exchange Board of India (SEBI) in 2021 took an initiative to revise and established a few new measures for the mutual fund industry to make mutual funds more investor friendly.

To increase the transparency of the risk associated with mutual funds, the Sebi revised a risk product labelling in mutual funds through riskometer.

What is a Risk-o-meter?

Risk-o-meter in Mutual Funds (MFs) is a pictorial representation of the risk level associated with each MF scheme.

There are six different risk levels ranging from low risk to very high risk. Every mutual fund scheme is mandated to assign a risk level based on the methodology defined by Sebi.

Accordingly, from January 1, 2021, the risk-o-meter has six risk groups. The labels of risk level now range from ‘low’ to ‘very high risk.’

The riskometer of the fund houses are evaluated on a monthly basis as per Sebi. That said, within 10 days of the end of each month, fund houses will be required to define the risk level of their schemes and exhibit it alongside portfolio disclosure.

In addition, any change in the risk-o-meter must be communicated to unitholders via newspaper publication, SMS, or email.

Financial experts firmly believe that a risk-o-meter just one factor to consider while making an investment decision.

Before making any investment decision, investors should also consider factors such as their investment objectives, investment horizon, and risk tolerance.