Mumbai: Today, many investors still invest in mutual fund schemes without fully understanding their risk profile. In 2021, the Securities Exchange Board of India (SEBI) took the initiative to revise and establish new measures for the mutual fund industry to make mutual funds more investor-friendly. As part of these measures, SEBI revised the risk product labeling in mutual funds through a riskometer to increase transparency of the risks associated with mutual funds.
What is a Riskometer?
The risk-o-meter in Mutual Funds (MFs) is a visual representation of the risk level associated with every type of mutual fund scheme. There are six different risk levels, ranging from low risk to very high risk. Every mutual fund scheme is required to assign a risk level based on Sebi’s methodology. Starting from January 01, 2021, the riskometer has six risk groups. The risk level labels now range from ‘low’ to ‘very high risk.’ Below are the six groups of risk:
The risk level of fund houses is evaluated on a monthly basis in accordance with Sebi regulations. Within ten days of the end of each month, fund houses are required to assess and disclose the risk level of their schemes. Any changes in the risk level must be communicated to unitholders through newspaper publication, SMS, or email.
Additionally, fund houses are obligated to disclose the risk level of their schemes at the start and end of each financial year and the number of times the risk level changed during the year on their website, the AMFI website, and in their Annual Reports.
End note
The Sebi’s riskometer is a helpful tool for investors to understand the level of risk associated with a specific mutual fund scheme. Not all mutual fund schemes have the same risk level. Financial experts firmly believe that the riskometer is just one factor to consider when investing in mutual funds. Investors should also consider other parameters such as their financial goals and risk appetite. Investors should also consider seeking the help of a financial planner if they are still unsure about their risk tolerance.
Sebi in 2021, revised the risk product labeling in mutual funds through a riskometer to enhance the transparency of mutual fund risks. Here is how a riskometer can help investors identify risk levels, but it should not be the sole criteria for selecting mutual funds. Business Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
