SEBI'S RISK-O-METER FOR MUTUAL FUNDS.
                     Click to edit MaSsteEr tBitleI 'sStyl eRISK-O-METER 
FOR MUTUAL FUNDS
1
ICNliTcRkO tDo UeCdTitI OMNaster title style
• In a development that will allow investors to make a 
more educated investment decision, capital markets 
regulator Securities and Exchange Board of India 
(SEBI) has made it mandatory for mutual funds to 
allocate a risk level to schemes, depending on 
certain criteria. 
2 2
Source: indianexpress.com
RClISicKk- Oto-M eEdTitE MRaster title style
• SEBI’s decision on the “risk-o-meter”, which it 
declared on October 5, 2020, came into effect on 
January 1. 
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Source: indianexpress.com
MClAicNkD tAoT eOdRitY  MFaOsRte Mr UtiTtlUeA sLt yFleUND
• In its circular released on October 5, the regulator 
made it mandatory for mutual fund houses to 
characterise the risk level of their schemes on a six-
stage scale from “Low” to “Very High”.
4 4
Source: moneycontrol.com
HClOicWk tWoI LeLd iTt HMEa sRtIeSrK t-Oitl-eM EstTyEleR WORK?
• The risk-o-meter must be evaluated on a monthly 
basis. 
• Fund houses are required to disclose the risk-o-
meter risk level along with the portfolio disclosure for 
all their schemes on their own websites as well as 
the website of the Association of Mutual Funds in 
India (AMFI) within 10 days of the close of each 
month.
5 5
Source: indianexpress.com
SCCliHckE MtoE edit Master title style
• All mutual funds shall assign a risk level to their 
schemes at the time of launch, based on the 
scheme’s characteristics.
• Any change in the risk-o-meter reading with regard 
to a scheme shall be communicated to the unit-
holders of that scheme.
6 6
Source: financialexpress.com
CHloicwk  itso t heidsi td Miffaesrteenr tt iftrloem st tyhlee 
older category risk level?
• Since the risk-o-meter of the mutual funds has been 
as specific; moreover, the agreements merely 
reflected the degree of risk of the class they entered. 
• They did not demonstrate the danger of individual 
schemes and their respective portfolios.
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Source: indianexpress.com
CRliisckk P taor aemdiet tMerasster title style
• Because risk value and risk criteria would become 
apparent if the financial markets takes crucial 
parameters such as credit risk, interest rate risk as 
well as liquidity hazard into consideration in the case 
of a debt structure, and parameters such as market 
capitalization, leverage, and equity cost effect 
indicators, industry practitioners consider that risk is 
now required to include a more rational assessment.
8 8
Source: indianexpress.com
HCloicwk  wtoil le tdhite  Mleavsetel ro ft irtilsek s btyel e
assigned?
• One of the six risk levels low, low to moderate, 
moderate, moderately high, high, and very high  
would apply, would depend upon the risk value 
calculated for the scheme. 
• So if the risk value of a scheme is less than 1, its 
risk level would be low, and if it is more the 5, the 
risk will be very high on the risk-o-meter.
9 9
Source: indianexpress.com
HCloicwk  wtoil le tdhite  Mriasskt evra ltuitel eb est yle
calculated?
• For an equity portfolio, the risk value would be a 
simple average of market capitalisation value, 
volatility value, and impact cost value.
1100
Source: moneycontrol.com
VClailcuka ttoio endit Master title style
• While the credit risk value of the portfolio would be 
assigned 1 for AAA rated and 12 for instruments 
below investment grade, the interest rate risk will be 
valued using the Macaulay Duration of the portfolio. 
1111
Source: indianexpress.com