Economics · Classification of Mutual Funds
A Sectoral Equity Fund is rated under the 'Very High Risk' category on the SEBI-mandated Riskometer. According to the classification and nature of mutual funds, what is the primary reason for this high risk rating?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The fund is newly launched, and SEBI rules automatically mandate a 'Very High Risk' rating for all NFOs during their first year.
- 2The fund concentrates its investments in one specific sector or industry, making it highly vulnerable to adverse sectoral changes.✓
- 3The fund rules legally restrict it from holding more than 10 stocks, creating severe concentration risk.
- 4The fund invests primarily in long-term Government Securities, which possess inherent high interest rate risk.
Correct answer
The fund concentrates its investments in one specific sector or industry, making it highly vulnerable to adverse sectoral changes.
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