Mastering Risk Management in Mutual Funds: The Impact Feature

Mutual funds offer professionally managed portfolios with diverse holdings, making them a popular investment avenue. However, does avoiding mutual funds due to the included risks make sense? Not quite!

The primary focus of managing risk in mutual funds is to stay informed and invest in schemes that align with investors’ risk appetite.

Understanding Risk Management Tools in Mutual Funds

Managing risk in mutual funds involves aligning investors’ risk appetite and financial goals to maintain a balanced portfolio. To assess and mitigate risks effectively, two crucial tools are essential:

Riskometer and Risk Profiler:

Riskometer: The Risk-o-Meter is a mandatory standardized risk categorization tool by SEBI. It is designed to measure the risk level of mutual fund schemes. The Riskometer provides a graphical representation that helps investors gauge the risk level associated with schemes integrated into a mutual fund portfolio. It offers a view of the risk level undertaken by the invested principal, ranging from low to very high. The Riskometer displays risk levels as follows:

• Low: Classified as ‘Low Risk,’ suitable for investors preferring minimal risk exposure. Funds in this category are appropriate for those seeking to take minimal investment risks.
• Moderately Low: Categorized as ‘Low to Moderate Risk,’ suitable for investors expecting to bear minimal to moderate market risks. This category is suitable for conservative investors.
• Moderate: Funds labeled as ‘Moderate Risk’ are suitable for moderately aggressive investors prepared to bear limited market risks to achieve wealth creation objectives.
• Moderately High: This category is for aggressive investors aiming for wealth creation with a medium- to long-term investment horizon. These funds typically undertake moderate to high market risks.
• High: ‘High Risk’ schemes are suitable for highly aggressive investors looking for wealth creation with a long-term investment perspective (>5 years). These schemes involve significant market risks and usually include sectoral/thematic/international/mid-cap/small-cap funds. Within this category, schemes within the mutual fund spectrum that take the highest risk relative to others are categorized. Funds in this category provide the potential for generating wealth, aligning with the investor’s principal objective of long-term asset creation. This category encompasses schemes that exhibit high volatility compared to other funds. By examining this category, investors can understand their risk tolerance and make well-informed decisions aligned with their comfort level and financial goals.

Risk Profiler: The Risk Profiler, on the other hand, is a tool that evaluates investors’ risk tolerance, capacity, and willingness to take risks based on various factors such as financial objectives, time horizon, and financial situation. It is a tool that empowers investors by providing a comprehensive assessment of their risk tolerance in accordance with their comfort level and financial objectives. 

By completing the risk profiler questionnaire, investors gain clarity on their risk preferences and receive clear insights into suitable investment choices from a risk perspective. This self-assessment tool strengthens investors in making informed decisions aligned with their comfort level and financial objectives.

Choosing Suitable Funds: Matching Risk Profiles

When investors analyze the risk-o-meter ratings of mutual funds and assess their individual risk tolerance through a risk profiler, the next step is to align them for optimal portfolio construction.

Matching with Risk Profiles: Investors should consider selecting mutual funds that match their risk-o-meter ratings identified by the risk profiler. This means choosing funds whose risk ratings align closely with the investor’s risk tolerance. It’s important to note that the risk-o-meter ratings are updated monthly.

Diversification: Diversification across asset classes and fund categories can further reduce risk. Based on their risk profiles, investors can optimize exposure to equity, debt, and hybrid funds to spread out risk effectively.

Review and Rebalance: Regularly reviewing and rebalancing the portfolio ensures that the desired level of risk exposure is maintained. Adjusting exposure to the market’s mood while controlling risk over time can enhance portfolio performance.

Remember, while risk management in investments can seem straightforward, informed decisions and strategic diversification can significantly mitigate risk, paving the way for long-term financial success.

Investor Education and Awareness through Axis Mutual Fund

Axis Mutual Fund is committed to educating and raising awareness among investors. Investors are required to complete a one-time process with Axis Mutual Fund.

For more information, visit www.axismf.com or contact us at customerservice@axismf.com. Investors should transact only with registered mutual funds, details of which are available on the Securities and Exchange Board of India (SEBI) – Intermediaries/Market Infrastructure Institutions section.

For any grievances, investors can call us at 1800 221 322 or email us at customerservice@axismf.com or lodge a complaint on the SEBI Scores portal at http://scores.gov.in.

A Risk Profiler is a tool to help determine your risk profile based on your inputs. Investors are responsible for their investment decisions and can seek investment advice from their financial advisors.

Legal Details: The establishment of Axis Mutual Fund Trust has been undertaken by Axis Bank Limited under the Indian Trusts Act, 1882 (liability limited to Rs. 1 lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (AMC). Risk Factors: Axis Bank Limited, as sponsor of the scheme, is not responsible or liable for any loss or shortfall resulting from the management of the scheme.