NISM-Series-V-A: Mutual Fund Distributors · Risk, Return and Performance of Funds
SEBI Riskometer Levels and Product Labelling for Mutual Funds
Updated 11 October 2026 · Fact-checked
The riskometer is a SEBI-prescribed dial on every mutual fund scheme showing its risk level. It has six levels: Low, Low to Moderate, Moderate, Moderately High, High and Very High. It sits with the product label, which states who the scheme suits. To answer questions, match the portfolio's risk to a level.
Understand Riskometer and Risk-o-meter Classification
Investors find it hard to judge how risky a scheme is. SEBI therefore requires product labelling. Every scheme carries a label that tells the investor what the scheme aims to do and how risky it is. The label has two parts: a short statement of who the scheme is suitable for, and a riskometer.
The riskometer is a dial, like a speedometer. The needle points to one of six levels: Low, Low to Moderate, Moderate, Moderately High, High, Very High. Earlier, the riskometer had only five levels, without Very High. SEBI moved to six levels so that high-risk schemes could be told apart more clearly.
The level is not chosen by the fund manager's opinion. SEBI prescribes a method. The AMC scores the scheme's portfolio on credit risk, liquidity risk and market risk, and the total gives a risk value that maps to a level. Safer, short-term, high-rated debt holdings score low. Small-cap, volatile equity or low-rated, long-duration debt holdings score high. Broadly, an overnight fund sits near the bottom and a small-cap or sectoral equity fund near the top.
The portfolio changes, so the riskometer changes. AMCs must review the level regularly (monthly) and disclose it with the portfolio. When the level changes, unitholders must be informed. The riskometer also appears for the scheme's benchmark, so you can compare the scheme's risk with its benchmark's.
As a distributor, you use the riskometer with the investor's own risk profile. The scheme's riskometer describes the scheme. It does not describe the investor. Your job is to match the two: a conservative investor should not be sold a Very High scheme just because returns look attractive.
Key formulas to remember
- Six riskometer levels (low to high)
- Low < Low to Moderate < Moderate < Moderately High < High < Very High
- Learn the order and the exact names. Exam options often shuffle or rename them.
- Risk components assessed
- Risk level = f(credit risk, liquidity risk, market risk)
- Equity portfolios are assessed mainly on market risk; debt portfolios on credit, liquidity and interest rate related risk.
- Product label wording
- "This product is suitable for investors who are seeking*" + objective of scheme; *Investors should consult their financial advisers if in doubt about whether the product is suitable for them
- The label states the scheme's objective and the advice to consult an adviser.
- Disclosure and change rule
- Riskometer reviewed monthly; changes in level communicated to unitholders
- The level is dynamic, not fixed at launch.
How to solve Riskometer and Risk-o-meter Classification questions
Use this method for any riskometer or product labelling question.
- 1Identify what is asked: a level name, the order of levels, how the level is set, or suitability for an investor.
- 2If the question gives a scheme type, judge its main risk: equity market risk, or debt credit, liquidity and interest rate risk.
- 3Place the scheme on the scale. Overnight and liquid sit low. Short-duration high-rated debt sits lower-middle. Diversified equity sits high. Small-cap and sectoral equity sit at the top.
- 4If the question is about an investor, match the scheme's riskometer to the investor's risk appetite and horizon. Do not assume they are the same thing.
- 5For disclosure questions, recall that the level is reviewed regularly and changes must be told to unitholders.
- 6Eliminate options that say the riskometer is fixed forever, guarantees returns, or is set by the fund manager at will.
- 7Pick the option that names the exact SEBI level or rule.
Quickest way: Rank the scheme, then check the trap words
When to use it: When you have under a minute per MCQ and the question asks for a level or a suitability match.
- Say the six levels in order in your head: Low, Low to Moderate, Moderate, Moderately High, High, Very High.
- Tag the scheme: shorter and safer debt means lower, equity means higher, narrow or small-cap equity means highest.
- Cross out words like guaranteed, fixed, permanent, or no risk.
- Choose the closest level or the option that matches risk to investor profile.
Common mistakes in Riskometer and Risk-o-meter Classification
Saying the riskometer has five levels.
The old five-level version is still in older books and memory.
Fix: Remember six levels. Very High was added as the top level.
Treating the riskometer as the investor's risk profile.
The word 'risk' appears in both, so they get mixed up.
Fix: The riskometer describes the scheme. The investor's risk profile is assessed separately. Distributors must match the two.
Believing the level is fixed at launch.
Students think a label never changes once printed.
Fix: The level is reviewed regularly as the portfolio changes, and unitholders are told about changes.
Assuming all debt funds are Low risk.
Debt is seen as safe compared with equity.
Fix: Credit, liquidity and interest rate risk can raise a debt fund's level. Low-rated or long-duration holdings score higher.
Thinking a Low riskometer means no risk or guaranteed returns.
'Low' is read as 'zero'.
Fix: Mutual fund schemes carry risk and returns are never guaranteed. Low is only the lowest level.
Mixing up the order of Moderate, Moderately High and High.
The names sound alike.
Fix: Use the order Moderate, then Moderately High, then High, then Very High.
Worked examples
Example 1
How many levels does SEBI's current riskometer for mutual fund schemes have, and which is the highest?
A. Five levels; High
B. Six levels; Very High
C. Four levels; Very High
D. Seven levels; Extreme
Show the solution
- Recall that the old riskometer had five levels ending at High.
- SEBI added one more level at the top to separate the riskiest schemes.
- That gives six levels: Low, Low to Moderate, Moderate, Moderately High, High, Very High.
- Only option B gives six levels with Very High on top.
Answer: B. Six levels; Very High
Example 2
A distributor sees that a scheme's riskometer has moved from Moderately High to Very High after the monthly portfolio review. Which statement is correct?
A. Nothing needs to be done because the level is fixed at launch
B. The change is a result of the portfolio's risk assessment and must be communicated to unitholders
C. The fund manager chose the new level without any method
D. The scheme now guarantees higher returns
Show the solution
- Recall that the riskometer is reviewed regularly, so it can change.
- The level comes from SEBI's method, which scores credit, liquidity and market risk of the portfolio.
- A change in level must be disclosed and communicated to unitholders.
- Option A is wrong as the level is not fixed. Option C is wrong as there is a prescribed method. Option D is wrong as risk does not guarantee returns.
Answer: B. The change is a result of the portfolio's risk assessment and must be communicated to unitholders
Exam tips
- Learn the six level names in exact order. Many MCQs test only this.
- Expect questions that link scheme type to a likely level, such as overnight at the low end and small-cap or sectoral equity at the top.
- Watch for options that say the riskometer is permanent or guarantees safety. They are almost always wrong.
- For suitability questions, match the scheme's riskometer with the investor's risk appetite and time horizon.
- Remember the label's advice line: consult a financial adviser if in doubt about suitability.
Practice questions from Risk, Return and Performance of Funds
- A scheme has an annual return of 14% with a standard deviation of 10%. The risk-free rate is 6%. What is the Sharpe ratio?
- Which measure shows how much a fund's returns deviate from its benchmark's returns, and is used to judge how closely an index fund tracks it…
- An equity fund's NAV was Rs 40.00 at the start of a year and Rs 46.00 at the end, with no dividend paid during the year. What is the absolut…
- A fund has an annual return of 14%, a standard deviation of 10% and a beta of 1.25. The risk-free rate is 6%. What is its Sharpe ratio?
- A mutual fund scheme's returns have a standard deviation of 18% per annum, while its benchmark index has a standard deviation of 15%. What d…
Riskometer and Risk-o-meter Classification: frequently asked questions
What are the SEBI riskometer levels for mutual funds?
There are six: Low, Low to Moderate, Moderate, Moderately High, High and Very High. The needle on the dial points to the level for the scheme.
How is the mutual fund riskometer calculated?
SEBI prescribes a method in which the AMC scores the portfolio on credit risk, liquidity risk and market risk. The combined risk value maps to one of the six levels. You do not need to compute exact scores for the exam, only understand the logic.
What is product labelling in mutual funds?
It is a label on the scheme stating who the scheme suits and showing its riskometer. It also advises investors to consult their financial adviser if in doubt.
Does the riskometer level stay the same over time?
No. It is reviewed regularly as the portfolio changes. If the level changes, unitholders must be informed.