The riskometer is a graphical representation of the risk associated with an investment in mutual funds. It was introduced by the Securities and Exchange Board of India (SEBI) in 2013 to help investors make informed decisions by providing a visual representation of the risk involved in a mutual fund scheme.
The riskometer typically displays the level of risk on a scale of five levels, ranging from low to high. The level of risk is determined based on factors such as the nature of the underlying assets, volatility, liquidity, and creditworthiness of the issuer.
The riskometer has five color-coded levels:
- Blue – Low Risk: These are schemes that are invested in debt securities, which have a lower degree of risk.
- Yellow – Moderately Low Risk: These are schemes that are invested in a mix of equity and debt securities, which have a moderate degree of risk.
- Brown – Moderate Risk: These are schemes that are invested primarily in equity securities, which have a higher degree of risk.
- Orange – Moderately High Risk: These are schemes that are invested primarily in mid-cap or small-cap stocks, which have a higher degree of risk.
- Red – High Risk: These are schemes that are invested primarily in small-cap stocks or other high-risk securities, which have a very high degree of risk.
Investors can use the riskometer to compare the risk levels of different mutual fund schemes and select the one that matches their risk appetite. However, it is important to note that the riskometer is only an indicative tool, and investors should also consider other factors such as past performance, investment objectives, and investment horizon before making a decision.