Learn the basics of managing risk in mutual funds, what is Riskometer and Risk Profiler?

Ronit Kawale
Ronit Kawale  - Senior Editor
8 Min Read

New Delhi. Mutual funds are a very popular medium of investment. It gives investors the opportunity to manage their diversified portfolio. However, like any other investment option, mutual funds involve market risks. Every investor should understand the risks associated with it. Shouldn't this mean that mutual funds should be avoided because there are risks involved? No, not at all!

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To manage the risks associated with mutual funds, it is important to be aware of the fluctuations and changes in the market. Also, one should invest in those schemes which are according to the risk appetite of the investors. Managing risk in mutual funds is also important because investors will be able to balance their risk appetite and financial goals. There are two essential tools for understanding and managing risks in mutual funds: the Riskometer and the Risk Profiler. This article explains how to best use these tools to match an investor's investments to his or her risk profile.

Risk-O-Meter is a standard tool issued by SEBI to measure risk in investments. This tool has been created to assess the potential risk in mutual fund investment schemes. Riskometer works to tell investors the risk associated with a mutual fund through graphs. It visually shows the level of risk for the invested principal, from minimum to maximum. The Risk-O-Meter indicates the level of risk:
1. Low – In funds falling under 'low risk', investors can expect to have minimal risk with their principal. These funds are the right option for investors who want to keep the risk level very low.
2. Relatively low – A fund falls in the 'low to moderate risk' category, where investors' principal comes under minimal market risk. This is the right option for people who believe in traditional investment methods.
3. Medium – 'Medium risk' funds are for investors who believe in traditional investment methods to some extent. They want to take limited risk on the invested amount to earn money.
4. High level of risk with limited capacity – This category includes such schemes which want to take risk on the investment amount as per the market forces. These are great options for investors who are interested in long term investment for 3+ years for high returns.
5. High – 'High Risk' schemes are for investors who are willing to take very high risk, this is a suitable scheme for investors who want to invest for a long time (>5 years). The risk involved when investing in these schemes is very high and they are deeply affected by market fluctuations.
6. Very High – These schemes typically invest in high risk equities with very volatile stocks compared to other funds. It is suitable for very aggressive investors. Here the principal invested is invested for a long time with the aim of making money. These are subject to the highest risk in the mutual fund category. This category of funds includes regional/theme based/international/midcap/small funds.

risk profiler
Risk Profiler is a tool that accurately assesses an investor's risk appetite based on his needs, risk appetite and risk appetite. This is a tool that helps investors accurately estimate their risk tolerance by taking into account factors such as investment objective, time horizon and financial position. By answering the questions in the Risk Profiler, investors can understand their potential. This makes the situation clear for both traditional and aggressive investors. This self-assessment provides correct information as per the convenience and financial goals of the investors and also keeps them updated.
Choosing the right fund for you: matching the risk profile
Now investors have the option to evaluate investments through the risk-o-meter rating of mutual funds. Additionally, he has also made an accurate assessment of his risk appetite on the Risk Profiler. After this comes the turn to move forward by combining these two in one direction.
Here's how investors can choose the right fund for their portfolio, considering their risk appetite:

● Match the risk profile: Investors should select mutual funds that match their risk appetite, using the risk-o-meter. For example, traditional investors can choose low-risk funds, while aggressive investors can choose high-risk funds. Also remember here that the Risk-O-Meter is updated every month.
● Diversification: Risk can be controlled to a great extent by diversifying across asset classes and different categories of funds. Through the risk profile, investors can minimize risk and manage their portfolio by investing across equity, debt and hybrid funds to maximize returns.

● Review and frequent balancing: The portfolio should be balanced regularly. With this the possibility of risk can be reduced to a great extent. Along with controlling the risk, you can also get better returns according to the fluctuations of the market.
Always remember, there is risk associated with investing. The intensity of risk can be reduced by taking right decisions and dividing your investments among different sectors. This can prove to be important for your financial success in the long run.

This is an initiative taken by Axis Mutual Fund to make investors aware. It is necessary for investors to complete KYC once.

For more information visit www.axismf.com or contact us at customerservice@axismf.com. Investors should invest only in registered mutual funds (MFs). All details of registered funds are available on www.sebi.gov.in – Intermediaries/Market Infrastructure Institutions section.

For resolution of any issue, investors can call 1800 221 322 or contact customerservice@axismf.com. Apart from this, if investors wish, they can lodge a complaint on SEBI's SCORE portal.
Risk Profiler is a tool to help you control your risk profile based on your inputs. Investors are responsible for their own investment decisions. Invest only after taking suggestions from your financial advisors.

Legal Disclaimer: Axis Mutual Fund is established under the Indian Trust Act, 1882. This is Axis Bank Ltd. Sponsored by (Liability subject to Rs 1 lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the AMC). Risk Factors: Axis Bank Limited is not responsible for any loss or damage incurred on any investment or scheme.

Mutual fund investment is subject to risk, read the documents carefully before investing in any scheme.

Tags: Business news in hindi, Investment tips, Mutual fund

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