Before you look at returns, check the risk. The riskometer shows you what you’re signing up for.

Mutual funds are often sold with one line:

But what does that really mean?

More importantly, how do you figure out what kind of risk you’re actually taking?

That’s where the Mutual Fund Riskometer comes in.

Introduced and regulated by SEBI (India’s capital market regulator), the riskometer is a visual tool designed to help investors understand the level of risk associated with a particular mutual fund.

Let’s break down what it is, how to use it, and why it deserves your attention—before, not after, you invest.

1. What Is a Mutual Fund Riskometer?

The Riskometer is a standardized scale that classifies each mutual fund into one of six risk levels, based on the nature of its underlying assets and investment strategy.

The six categories are:

1. Low – Minimal risk (e.g., overnight funds)

2. Low to Moderate – Slight risk (e.g., short-duration debt funds)

3. Moderate – Balanced risk (e.g., conservative hybrid funds)

4. Moderately High – Considerable equity exposure (e.g., balanced advantage funds)

5. High – Significant volatility (e.g., equity funds, sectoral funds)

6. Very High – Maximum potential volatility and drawdowns (e.g., small-cap, thematic funds)

2. Why Is the Riskometer Important?

✅ It aligns your risk with your investment choice

If you’re a conservative investor and unknowingly choose a fund with “Very High” risk, you’ll likely panic and exit during market dips.

✅ It sets return expectations

Higher risk funds have the potential to deliver higher returns—but also higher volatility.

✅ It helps with fund comparison

You can’t compare a debt fund with “Low” risk to a small-cap fund with “Very High” risk. The riskometer lets you compare within and across categories with more clarity.

✅ It simplifies complex jargon

You don’t need to be a financial expert to use the riskometer—one glance tells you the risk reality.

3. Real-World Examples

4. How the Riskometer Is Calculated

SEBI requires fund houses to assess risk based on five parameters:

1. Credit Risk – Will the bond issuer repay?

2. Interest Rate Risk – Will bond prices fall if rates rise?

3. Liquidity Risk – Can the fund easily sell its holdings?

4. Market Risk – Are equity prices volatile?

5. Concentration Risk – Is the portfolio too focused?

Each factor is scored, and the final rating is updated monthly on the AMC website and factsheet.

5. How to Use the Riskometer as an Investor

🎯 Match the riskometer with your comfort zone

If you’re risk-averse, avoid funds labeled “High” or “Very High” unless it’s a small portion of your portfolio.

🧭 Use it to balance your portfolio

Mix funds across different risk levels—like pairing a moderately high equity fund with a low-risk debt fund.

📊 Revisit regularly

If your fund’s riskometer changes (say from “Moderate” to “High”), understand why. Is it temporary? Or a shift in strategy?

6. What the Riskometer Doesn’t Tell You

❌ It doesn’t guarantee return or safety

A “Low” risk fund can still give negative returns in rare cases (like interest rate shocks in debt)

❌ It doesn’t reflect personal risk appetite

Just because a fund says “Moderate” doesn’t mean it’s right for your financial goals

❌ It’s not a substitute for proper advice

Use it as a starting point—not the only input in your decision-making

TL;DR — Too Long; Didn’t Read

• The Mutual Fund Riskometer shows how risky a fund is—on a scale from Low to Very High

• It helps you choose funds that align with your risk tolerance, time horizon, and goals

• Higher risk = higher return potential, but also higher volatility

• Use it to avoid mismatched expectations and panic-selling

• It’s updated monthly—so keep an eye out for changes

📩 Wondering if your current mutual funds match your risk profile? Let’s review your portfolio together and rebalance it using the riskometer as your guiding compass.