How can I find out what kind of risk I can take with the help of Risk-o-meter?

In the context of mutual fund investments, what kind of risk (or how much risk) one can take would primarily depend upon the individual’s risk appetite in terms of ability and willingness. Risk-o-meter is a visual representation of risk grading of a mutual fund scheme to enable investors to intuitively gauge relative risk associated with a mutual fund scheme, understand the risk representation easily, and take an informed decision while investing. Previously, as per Sebi guidelines, mutual funds were required to ‘label’ the mutual fund schemes using colour-coded boxes to indicate the level of risk of a scheme (depicted by brown, yellow and blue colours for high, medium and low risk, respectively), so as to provide investors an easy understanding of the kind of scheme they were investing in and understand the suitability thereof. As this three-level risk categorisation was considered inadequate, Sebi stipulated that the levels of risk in mutual fund schemes would be categorised under five levels:

(a) Low: Principal at low risk;

(b) Moderately Low: Principal at moderately low risk;

(c) Moderate: Principal at moderate risk;

(d) Moderately High: Principal at moderately high risk; and

(e) High: Principal at high risk

Sebi has also stipulated that the depiction of risk using colour codes will be replaced by a pictorial meter named Risk-o-meter, which would appropriately depict the level of risk in any specific scheme based on the above parameters. For example, in the illustration above, the Risk-o-meter of the scheme indicates that the principal will be at moderate risk.

olmdesk@outlookindia.com