SEBI requires every mutual fund scheme to display a risk-o-meter that is reviewed periodically. Categories typically range from Low to Very High.
The rating is driven by the scheme’s actual holdings — equity allocation, credit quality of debt, concentration, volatility, and other factors defined in the regulations.
Use it as a quick filter: a Very High risk fund is unlikely to be suitable for money you need in two years. It does not tell you whether the fund is good or bad at what it does, or whether it matches your specific goal. Always combine the risk-o-meter with the investment objective, portfolio, and your own time horizon.