What are target maturity funds?
Amit Bivalkar: Risk-o-meter is just a tool to show what kind of risk this product actually carries. For example, it starts at one and ends at six – from low, low to moderate, moderate, high and very high.
Now a very high risk can be for a certain group of customers. But if I’m a guy who likes to take risks, a very high would be normal for me. Thus, like all international funds – international ETFs – they are by default qualified as very high. But maybe I’m bullish on technology and want to invest. So maybe it’s not high for me because I understand technology. So very high, high is for the general classification of funds.
There are three important factors when it comes to measuring risk, and this relates more to equity funds. One is your market cap. SEBI has defined market capitalization – large cap, mid cap and small cap. This is the weight of 5, 6 and 7.
Then there is the volatility factor. A volatility factor greater than 1% and less than one, they have a factor for that.
Then you have an impact cost. The impact cost is very important because you could have illiquid stocks in the portfolio, which impacts the net asset value when you sell or buy. So also look at the impact cost.
A simple average of all of this combined with the weighting is actually your risk-o-meter score.
And that risk-o-meter score then tells you whether it’s 4, 5, or 6, and then accordingly whether it’s moderate risk, high risk, or risk. very high. So very high risk means volatility is going to be high for a long time, and you can expect capital growth and good returns over long periods of time.
So I will say that low to high is also your money span. This low means that you can invest in these products for less time.
Very high is five years and beyond. If you want to put money aside for five years and more, these are the products you should put it in.