It refers to an assessment of an investor’s willingness and ability to take risks. Determining one’s risk profile is essential to make informed investment decisions.
Willingness to take risks refers to an individual’s risk aversion. If a person has low willingness to take on risk, he is said to be risk-averse.
The ability to take risks is evaluated through a review of an individual's assets and liabilities
There are primarily 5 categories of Risk profile: Low, Moderately Low, Moderate, Moderately High and High. These risk profiles depend upon various factors such as your age group, the goal of investing, risk appetite, etc.