Riskometer
The riskometer is SEBI's mandatory pictorial risk label for mutual fund schemes, showing one of six levels from Low to Very High, based on the scheme's actual portfolio and reviewed every month.
What Is a Riskometer?
The riskometer (written as "Risk-o-meter" in SEBI documents) is a dial-shaped graphic that shows how risky a mutual fund scheme is. SEBI requires every scheme to display it as part of its product label, along with a short description of the scheme's nature and objective.
It exists to give investors a quick, standardised view of risk before they invest. You will see it on application forms, the SID and KIM, advertisements, factsheets and wherever a scheme's performance is shown.
SEBI's Master Circular for Mutual Funds specifies six levels of risk, each with a prescribed colour:
| Level | Risk | Colour |
|---|---|---|
| 1 | Low | Irish Green |
| 2 | Low to Moderate | Chartreuse |
| 3 | Moderate | Neon Yellow |
| 4 | Moderately High | Caramel |
| 5 | High | Dark Orange |
| 6 | Very High | Red |
The label reads, for example: "The risk of the scheme is Moderately High."
How Does It Work?
- Initial level at launch: The AMC assigns a risk level based on the scheme's characteristics when it is launched.
- Portfolio-based scoring: SEBI's methodology assigns risk values to each holding based on factors such as market capitalisation, volatility and impact cost for equities, and credit risk, interest rate risk and liquidity risk for debt. The weighted risk value of the portfolio maps to one of the six levels.
- Monthly review: The riskometer is evaluated every month. AMCs must disclose it along with portfolio disclosure for all schemes on their websites and on the AMFI website within 10 calendar days from the close of each month.
- Benchmark riskometer: The riskometer of the scheme's primary benchmark must also be shown on the front page of the application form, SID and KIM, and wherever scheme performance is compared with the benchmark.
- Change notification: Any change in the riskometer of a scheme or its benchmark must be communicated through a notice cum addendum and by email or SMS to unitholders of that scheme.
- Annual record: Mutual funds disclose each scheme's risk level as on 31 March every year, along with the number of times it changed during the year.
Practical Example
Illustrative scenario.
Scenario 1: A label changes. Pooja invests in a large and mid-cap scheme labelled Moderately High. Over a few months, the fund manager increases the share of mid-cap stocks. In the monthly evaluation, the portfolio's risk value rises and the label becomes Very High. Pooja receives an email informing her of the change, showing the existing and revised riskometer. She reviews whether this level still fits her risk appetite and goal.
Scenario 2: Commodities. SEBI's Master Circular assigns risk scores to commodities based on the annualised volatility of the commodity's benchmark price over the past 15 years, computed quarterly:
| Annualised volatility | Risk value |
|---|---|
| Below 10% | 3 (Moderate) |
| 10–15% | 4 (Moderately High) |
| 15–20% | 5 (High) |
| Above 20% | 6 (Very High) |
Using SEBI's own illustration: if gold's annualised volatility is 18%, gold and gold-related holdings get a risk value of 5 (High).
Why Is It Important?
- Quick suitability check: Helps match a scheme to your risk appetite.
- Scheme-specific: The level is based on each scheme's own portfolio, so two schemes in the same category can carry different labels.
- Ongoing monitoring: Monthly updates show when a scheme's risk is rising or falling.
- Benchmark context: Comparing the scheme's and benchmark's riskometers shows whether the fund is taking more or less risk than its index.
Key Features or Components
- Six levels from Low to Very High, with standard colours.
- Portfolio-based methodology prescribed by SEBI.
- Monthly evaluation, disclosed within 10 calendar days of month-end.
- Displayed with the benchmark's riskometer.
- Investor communication on every change.
- Complemented by the Potential Risk Class (PRC) matrix for debt mutual funds, which shows the maximum interest rate risk and credit risk a debt scheme can take.
Benefits and Limitations
Benefits
- Simple, standardised, visual and comparable across AMCs.
- Updated regularly based on actual holdings.
- Mandatory in documents and advertisements, so it is hard to miss.
Limitations
- It is a broad indicator, not a full risk analysis. Two "Very High" schemes can behave very differently.
- It reflects the current portfolio; future risk can change.
- It does not tell you whether a scheme suits your goal or time horizon.
- Most equity schemes sit at "Very High", so the label alone may not distinguish among them.
Comparison With Related Concepts
| Concept | Meaning | Key difference | Practical implication |
|---|---|---|---|
| Riskometer | Six-level portfolio-based risk label | Standardised by SEBI, reviewed monthly | Quick screen for suitability |
| Potential Risk Class (PRC) matrix | Grid of maximum interest rate and credit risk for debt schemes | Shows the maximum risk a debt scheme can take | Use with the riskometer for debt funds |
| Volatility | How much returns fluctuate | A statistical measure | Riskometer partly reflects it |
| Risk appetite | Your willingness and ability to take risk | About you, not the scheme | Match the scheme's level to it |
How Does It Apply to Mutual Fund Investors?
- Scheme selection: Use the riskometer as a first filter, then study the portfolio, strategy and past behaviour in downturns.
- Goal matching: Short-term goals usually call for lower-risk schemes; long-term goals can accommodate higher risk if you can tolerate interim falls.
- Monitoring: Read riskometer change emails and check the monthly portfolio when the level moves.
- Documents: The riskometer appears on the front page of the SID and KIM and in the monthly portfolio emails sent to investors.
Common Mistakes and Misconceptions
- "Low risk means no loss." Correct: Even Low or Low to Moderate schemes can lose value. Why it matters: No mutual fund is risk-free.
- "All schemes in a category have the same riskometer." Correct: Levels are assigned scheme by scheme, based on the portfolio. Why it matters: Check each scheme individually.
- "The riskometer predicts returns." Correct: It indicates risk, not expected returns. Why it matters: Higher risk does not guarantee higher returns.
- "Once assigned, the riskometer stays the same." Correct: It is reviewed monthly and can change. Why it matters: Your scheme may drift away from your comfort level.
Important Terms to Know
- Risk Appetite: how much risk you are willing and able to take.
- Risk and Return: the relationship between potential gains and possible losses.
- Volatility: the degree of fluctuation in returns.
- Credit Risk: the risk that a bond issuer fails to pay.
- Interest Rate Risk: the risk of bond prices falling when rates rise.
- Portfolio Disclosure: the monthly holdings disclosure published with the riskometer.
Key Takeaways
- The riskometer is SEBI's six-level risk label, from Low to Very High.
- It is based on the scheme's actual portfolio and reviewed monthly.
- The benchmark's riskometer is shown alongside for comparison.
- Investors are informed by email or SMS whenever it changes.
- Use it as a first filter, not a complete measure of suitability.
Related Glossary Terms
References
- SEBI Master Circular for Mutual Funds (20 March 2026), paragraphs 6.16–6.18: Product Labelling and Risk-o-meter
- SEBI (Mutual Funds) Regulations, 2026 (amended up to 7 July 2026)
Disclaimer
This article is for educational and informational purposes only. It is not personalised investment, tax or legal advice, and it does not recommend any specific scheme. Mutual fund investments are subject to market risks; read all scheme-related documents carefully. Rules mentioned here can change, so check the latest SEBI and AMFI updates, and consider your financial goals, risk profile and investment horizon (or speak to a qualified professional) before making any decision.
Published by FynnChintan Finserv, an AMFI-registered mutual fund distributor. Beyond Numbers. Into Opportunities.
Want to keep learning? Explore the related terms above in the FynnChintan Financial Glossary, or read more about building a financial plan around your goals.
Frequently Asked Questions
What are the six levels of the mutual fund riskometer?
SEBI's six levels are Low, Low to Moderate, Moderate, Moderately High, High and Very High. Each has a prescribed colour, from green for Low to red for Very High.
How often is the riskometer updated?
It is evaluated monthly. AMCs must publish it with the monthly portfolio on their websites and the AMFI website within 10 calendar days from the end of each month, and inform unitholders by email or SMS whenever it changes.
Why do most equity funds show "Very High" risk?
Equity prices can fluctuate sharply, and SEBI's methodology scores equity holdings based on factors such as market capitalisation, volatility and liquidity. As a result, many equity schemes reach the highest level. Use other measures, like portfolio quality and past drawdowns, to compare within this group.
Can I exit without exit load if my scheme's riskometer changes?
Not automatically. SEBI states that a change in the riskometer is not a fundamental attribute change, so the usual exit load terms continue to apply. Review whether the scheme still suits you before deciding.
Should I only invest in schemes matching my risk profile on the riskometer?
The riskometer is a useful starting point, but suitability also depends on your goal, time horizon, existing portfolio and ability to handle temporary losses. Consider these factors together, and refer to the scheme documents.
This explanation is for general education only and is not investment advice. Mutual fund investments are subject to market risks; read all scheme-related documents carefully.