All AMCs have to assign one of 5 risk categories defined by SEBI to their MF strategies. The rating is assigned based on the level of risk of the strategy.
The 5 levels of risk defined by SEBI are :
Low - principal at low risk
Moderately Low - principal at moderately low risk
Moderate - principal at moderate risk
Moderately High - principal at moderately high risk
High - principal at high risk
For eg : The small cap fund managed by an AMC would be categorised as “High risk” as equity as an asset class is volatile, on the other hand the corporate bond fund that invests most of its funds into AA & above rated bonds issued by corporates would be categorised as “moderate risk” as the risk to capital invested is much lower than equity strategies.