The Synthetic Risk and Reward Indicator (SRRI) is a numerical scale from 1 to 7 used to assess the risk and potential return of investment funds, particularly UCITS funds. A rating of 1 indicates low risk and low potential returns, while a rating of 7 signifies high risk with the possibility of higher returns. This indicator is an integral part of the Key Investor Information Document (KIID), providing investors with a standardized method to evaluate and compare the risk profiles of different funds.
The SRRI is calculated based on the fund's historical volatility, reflecting the degree of variation in its returns over a specified period. A higher SRRI suggests greater price fluctuations and a higher probability of capital loss, whereas a lower SRRI indicates more stable returns with a lower risk of loss.
It's important to note that the SRRI is not a guarantee of future performance but rather a tool to help investors understand the potential risk and reward associated with a fund. The SRRI can change over time due to market conditions and the fund's performance.