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What is Risk Profile?

Updated on July 11, 2024 , 10685 views

A risk profile is one of the most important things to analyse before making an investment. Ideally, experienced investors would know their risk ability, but a newbie would have a very little idea about the risk involved with Mutual Funds or the right mutual fund as per their risk appetite.

In many certains, most of the investors were overconfident at the time of Investing and they turn extremely nervous as the Market becomes volatile. Hence, knowing your risk profile remains at the center stage of any investment.

Especially in the case of mutual fund investment, the suitability of a product largely depends upon the characteristics of the investor. Investors should know their investment objective, how long they wish to invest, ability to tolerate risk, minimum investment amount, etc.

Risk Profiling Procedure

Risk– with respect to investing– is the Volatility or the fluctuation of the prices and/or investment returns. So risk assessment or risk profiling is the systematic evaluation of all the potential risks involved in the investment activity. Risk profiling gives you a clear picture of your risk appetite, i.e. evaluating your risk capacity, your required risk, and your risk tolerance. We will elaborate each term separately.

When an investor conducts their risk profiling, they have to answer a set of questions designed specifically for the purpose. The set of questions differs for different Mutual Fund Houses or distributors. The score of investor after answering the questions determines their Range of taking a risk. An investor can be a high-risk taker, mid-risk taker or can be a low-risk taker.

Risk Identification and Risk Analysis

Once the risk is identified by the risk assessment procedure, that risk is then analysed. It is divided into three broad categories -


Risk Capacity

Risk capacity is the quantitative measure of taking a risk. It maps your current and future financial position which includes factors like Income, savings, expenses, and liabilities. With these factors evaluated, the rate of returns required to reach your Financial goals is determined. In simple words, it is the level of the Financial Risk you can think of affording.

Risk Required

Risk required is determined by your risk capacity. It is the risk associated with the returns needed to reach your financial targets with available resources. Risk required educates you about what you could potentially be taking on with a certain investment. It gives you an honest perception and a clear picture about the type of the risk you are about to take.

Risk Tolerance

Risk tolerance is the level of risk you are comfortable with. It is simply your willingness to accept the fluctuations in the market that may or may not occur in order to achieve your financial objectives. Risk tolerance can be broadly divided three types

  1. High-Risk Tolerance
  1. Mid-Risk Tolerance
  1. Low-Risk Tolerance

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Risk Assessment Methodology- Factors & Influence

To determine the category in which you fall there are certain parameters considered

Factor Influence on Risk Profile
Family Information
Earning Members Risk appetite increases as the number of earning members increases
Dependent Members Risk appetite decreases as the number of dependent members increases
Life expectancy Risk appetite is higher when life expectancy is longer
Personal Information
Age Lower the age, higher the risk that can be taken
Employability Those with steady jobs are better positioned to take risk
Psyche Daring and adventurous people are better positioned mentally, to accept the downsides that come with risk
Financial Information
Capital base Higher the capital base, better the ability to financially take the downsides that come with risk
Regularity of Income People earning regular income can take more risk than those with unpredictable income streams

Best Mutual Funds As Per Risk Appetite

Mutual Funds for Conservative Investors

FundNAVNet Assets (Cr)3 MO (%)6 MO (%)1 YR (%)3 YR (%)2023 (%)Debt Yield (YTM)Mod. DurationEff. MaturitySub Cat.
Franklin India Ultra Short Bond Fund - Super Institutional Plan Growth ₹34.9131
↑ 0.04
₹2971.35.913.78.8 0%1Y 15D Ultrashort Bond
Aditya Birla Sun Life Savings Fund Growth ₹509.143
↑ 0.08
₹13,5801.83.87.467.27.88%5M 16D7M 13D Ultrashort Bond
BOI AXA Liquid Fund Growth ₹2,811.05
↑ 0.57
₹1,6551. 17D1M 17D Liquid Fund
Axis Liquid Fund Growth ₹2,718.57
↑ 0.54
₹36,5181. 8D1M 8D Liquid Fund
Canara Robeco Liquid Growth ₹2,939.29
↑ 0.60
₹3,7901. Liquid Fund
LIC MF Liquid Fund Growth ₹4,417.94
↑ 0.89
₹12,7411. 13D1M 14D Liquid Fund
Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 7 Aug 22

Mutual Funds for Low to Moderate Risk Takers

FundNAVNet Assets (Cr)3 MO (%)6 MO (%)1 YR (%)3 YR (%)2023 (%)Debt Yield (YTM)Mod. DurationEff. MaturitySub Cat.
Aditya Birla Sun Life Corporate Bond Fund Growth ₹103.93
↑ 0.01
₹22,0422.24.27.767.37.65%3Y 7M 20D5Y 6M 14D Corporate Bond
HDFC Corporate Bond Fund Growth ₹29.9708
↑ 0.01
₹28,6452. 6M 6D5Y 6M 25D Corporate Bond
HDFC Banking and PSU Debt Fund Growth ₹21.2416
↑ 0.01
₹6,32723. 3M 12D4Y 5M 17D Banking & PSU Debt
UTI Banking & PSU Debt Fund Growth ₹20.2604
↑ 0.01
₹8961. 8M 16D3Y 2M 26D Banking & PSU Debt
PGIM India Short Maturity Fund Growth ₹39.3202
↓ 0.00
₹ 7.18%1Y 7M 28D1Y 11M 1D Short term Bond
ICICI Prudential Corporate Bond Fund Growth ₹27.5231
↑ 0.01
₹27,1482. 9M 11D4Y 7M 10D Corporate Bond
Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 12 Jul 24

Mutual Funds for Moderate to High Risk Takers

FundNAVNet Assets (Cr)3 MO (%)6 MO (%)1 YR (%)3 YR (%)5 YR (%)2023 (%)Sub Cat.
Aditya Birla Sun Life Medium Term Plan Growth ₹35.2093
↑ 0.00
₹1,8592.64.47.512.78.76.9 Medium term Bond
ICICI Prudential Gilt Fund Growth ₹94.5311
↑ 0.00
₹6,2892. Government Bond
SBI Magnum Gilt Fund Growth ₹61.2474
↓ -0.02
₹8,75734. Government Bond
DSP BlackRock Government Securities Fund Growth ₹89.0157
↓ -0.02
₹1,0123.368. Government Bond
Axis Strategic Bond Fund Growth ₹25.7081
↑ 0.00
₹1,9362. Medium term Bond
ICICI Prudential Medium Term Bond Fund Growth ₹41.171
↑ 0.01
₹6,1392. Medium term Bond
Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 12 Jul 24

Mutual Funds for High Risk Takers

FundNAVNet Assets (Cr)3 MO (%)6 MO (%)1 YR (%)3 YR (%)5 YR (%)2023 (%)Sub Cat.
Nippon India Small Cap Fund Growth ₹175.688
↓ -0.22
₹51,56619.324.557.333.235.648.9 Small Cap
Motilal Oswal Midcap 30 Fund  Growth ₹97.4823
↑ 0.88
₹9,81919.929.966.83932.441.7 Mid Cap
Kotak Small Cap Fund Growth ₹272.159
↓ -1.22
₹15,28320.121.946.523.631.334.8 Small Cap
L&T Emerging Businesses Fund Growth ₹85.8596
↓ -0.03
₹14,78717.922.254.930.129.846.1 Small Cap
Edelweiss Mid Cap Fund Growth ₹95.026
↑ 0.11
₹5,86418.727.361.226.829.738.4 Mid Cap
PGIM India Midcap Opportunities Fund Growth ₹62.89
↓ -0.03
₹10,15513.516.633.718.929.120.8 Mid Cap
Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 12 Jul 24

The Importance of Risk Profiling

Risk profiling gives you the clear picture of all the risk and returns expectations from an investment. It helps you create a focused strategy to invest in a manner that will help you reach your financial goals. Your financial advisor is expected to give you all the necessary information regarding risk assessment and help you carry out the same. Securities and Exchange Board of India (SEBI) and The Association of Mutual Funds of India (AMFI) both have stated the guidelines and norms for carrying out a detailed risk assessment of the investor and then suggest them the appropriate schemes. Such approach helps in reducing the losses that might occur if an investor invests in a scheme that is out of their risk appetite.

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All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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