Riskometer

The Riskometer is the speedometer-style dial you see on every Indian mutual fund's factsheet, scheme document and marketing material. It is a SEBI requirement designed to make risk visible before you invest.

The six levels

The needle points to one of six levels: Low, Low to Moderate, Moderate, Moderately High, High and Very High. SEBI added the sixth level, "Very High," in 2021, and later specified a colour code for each band to make it even easier to read at a glance.

As a rough guide, liquid and overnight funds tend to sit at the lower end, balanced and hybrid funds in the middle, and small-cap, sectoral and thematic equity funds at "Very High."

How it is calculated

Crucially, the Riskometer is portfolio-based, not category-based. SEBI requires fund houses to assign risk from the actual securities a scheme holds, scoring factors like credit quality, interest-rate sensitivity and liquidity for debt funds, and market-cap and volatility for equity funds. This means a fund's risk level can change as its holdings change.

In India

AMCs must disclose the Riskometer every month and, importantly, must notify existing investors whenever a scheme's risk level changes, by email or SMS. So if your debt fund quietly drifts from "Moderate" to "High," you are supposed to be told.

You will find the dial on the AMC website, on AMFI's portal, and on platforms like Groww, Coin and Kuvera.

Why it matters, and its limits

The Riskometer is a genuinely useful first filter for matching a fund to your comfort level and goal. A retiree should be wary of a "Very High" fund for money needed soon; a young investor with a long horizon can stomach more.

But treat it as a starting point, not the whole story. It does not tell you about expected returns, it can lag sudden portfolio shifts, and two "High" funds can carry very different risks. Combine the Riskometer with the fund's actual holdings, category, expense ratio and your own time horizon before deciding.