Investor Corner/The wider picture/Risk, Regulation & Advanced Ideas
5.3.1 Riskometer
The riskometer is a regulator-mandated visual label, ranging from Low to Very High, shown for every mutual fund scheme based on its portfolio. It is a useful first filter, not a complete risk analysis on its own.
What determines the rating
The riskometer level is calculated using a defined methodology that looks at the volatility, credit quality and liquidity of a fund's actual portfolio holdings, then places the scheme into one of several risk bands. It is recalculated periodically as the portfolio changes, so a fund's riskometer level can shift over time even without any change to its stated strategy or category.
What it captures well, and what it does not
The riskometer gives a genuinely useful, standardised, at-a-glance signal for comparing very different fund types on a common scale. It does not capture manager-specific risks, such as concentration in a small number of holdings or unusually aggressive individual stock picks within an otherwise moderate category, and it says nothing about a fund's cost or its actual historical consistency.
How to use it sensibly
Treat the riskometer as an initial screening tool: a fund's riskometer level should reasonably match your own risk capacity and tolerance before you look any further. Once that initial screen is passed, a fuller look at the fund's actual portfolio, expense ratio, and historical performance is still necessary before making an actual investment decision.
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