Reading the Riskometer

Every mutual fund scheme in India must display a Riskometer with six levels: Low, Low to Moderate, Moderate, Moderately High, High and Very High. It is assigned from the actual portfolio, not the category name.

How the level is derived

For equity portfolios it reflects market capitalisation and volatility. For debt, it combines credit quality, interest-rate risk and liquidity. Schemes must reassess monthly and disclose changes, so the label moves as the portfolio does.

What it is useful for

• A quick sanity check that a scheme matches your risk tolerance.
• Spotting drift — a debt fund creeping up the scale is a signal worth investigating.
• Comparing risk consistently across AMCs, since the methodology is standardised.

Its limits

It is a single backward-looking label. Most equity funds cluster at Very High, so it rarely distinguishes between them, and it says nothing about whether the risk is being rewarded. Use it as a floor check, not a selection tool.