Six in ten respondents not aware of what risk-o-meter indicates in a mutual fund, finds Axis MF’s survey

• Sebi mandated labeling of ‘risk’ that a mutual fund scheme carries so that investors know what is in store.
• Axis MF survey finds that investors are oblivious of what the risk-o-meter is all about.
• An overwhelming 66% want to understand what the risk-o-meter is all about.
  

Nearly a decade ago, the markets regulator mandated mutual fund houses to label their schemes such that investors would be told upfront about the quantum of risk the scheme carried. Under these rules, mutual funds display a risk-o-meter on all their schemes so that investors are fully informed on the downsides of the scheme. The higher the score, the greater at risk is the capital. A decade after the Securities and Exchange Board of India, investors are not even aware of this feature.

Axis Mutual Fund conducted an investor survey to ascertain ‘Risk Comprehension’ amongst Indian investors. The survey received responses from over 1700 Axis MF investors from across the country. The objective of the survey was to receive insights on investors’ attitude and understanding of risks in mutual fund investing. As high as 61% of the respondents were not aware of what risk-o-meter indicates. Only 16% of the total respondents who were aware of a ‘Riskometer’ and that it indicated ‘Fund’ risk, claimed to check the ‘Riskometer’ before making an investment. An equally large number – 66% respondents – said that they would like to understand more about the risk-o-meter and its importance in making informed decisions.

Commenting on the inferences drawn from the survey, B Gopkumar, MD & CEO, Axis AMC said: “The mutual fund industry is at an interesting inflection point today, underscored by the increasing influx of investors in the category. While we continue to grow as an industry, enabling investors to make informed investment decisions is also our responsibility. To that end, this survey was conducted to get insights on investor’s understanding of risk, and awareness of the tools available to investors to assess risks associated with mutual fund investments.”

The survey findings revealed several interesting patterns. However, 59% investors still consider past performance as one of the key benchmarks for investing in mutual funds. Oftentimes, mainly influenced by market noise, investors tend to redeem their investments even though they are aware of the importance of long-term investing and the power of compounding. According to data by AMFI, 22.2% equity investors stay invested for 12-24 months and in total 48.7% equity investors redeem their portfolio within two years or less.

Even though 89% investors believe that understanding ‘risk appetite’ plays a role in choosing the right mutual fund, only 27% investors said that they actually took their risk appetite into consideration before investing. In fact, the survey reveals that 53% investors are not very confident of personal risk assessment while choosing a mutual fund. It is imperative to understand that each investor has a different risk appetite based on his/her investment profile, financial goal, and needs. Furthermore, investments are still largely ‘behaviourally’ influenced, making it even more important to shape this attitude into an aware, educated, and well-informed skill set.

The survey found 27% respondents took risk appetite into account while investing, but 64% were not aware of risk profiler as a tool to evaluate risk appetite and of the total survey respondents, only 30% of respondents were aware of Risk Profiler. This indicates that investors know the importance of risk profiling but might not be aware of ‘Risk Profiler’ as a tool for assessing personal risk, leading to a potential mismatch between personal risk and that of the fund. Only 12% of the total respondents who were aware of a ‘Risk Profiler’ claimed that they were either confident or somewhat confident in assessing their risk-taking ability.