The new riskometer definitely helps more than the existing colour codes as there are more categories of risk and AMCs will have to classify the schemes in a more detailed manner. The Association of Mutual Funds of India (AMFI) has formed a committee that will decide basic standards and guidelines to be used to classify the schemes.

But on the other hand, more risk levels might lead to more confusion for the retail investor. The risk levels will not help investors to determine the returns to decide if they want to invest in a particular scheme. The ranking of the schemes for their risk will still be largely subjective which does not help the investors too much. It also does not do much to protect investors from mis-selling fully.

For example, a mutual fund house might label a large cap equity fund as ‘High risk’ and another mutual fund house with a similar large cap equity scheme might label it as ‘Moderately High’.

An investor will still have to read through the offer document, understand the risks involved, assess whether the scheme matches the assessment of his risk taking capacity and risk tolerance levels. Th investor will have to understand the risk-return ratio before investing in a mutual fund scheme. It is good for a first time investor who will be able to understand categories of mutual funds and the relative risk involved in investing in them by following the riskometer. If an investor is not sure of his abilities to invest or is new to mutual fund investment, he should consult a financial planner or understand the product completely from all aspects and read all the related documentation before investing in it.

It is too early to give a verdict on it but we will be able to understand how helpful it is, once it is implemented and used for some time.