Credit Rating Information Services of India
CRISIL is a global agency that rates financial institutes and financial instruments. The service offers a myriad of financial services and how likely a particular mutual fund is going to deliver and during the framework within the policy through the Credit information Service of India .The agency enjoys a number of benefits such as acknowledgment among investors, housing fund analysis.
CRISIL Parameters to Rate Mutual Funds
CRISIL mutual fund rating avails all variables in rankings description method. Only open end scheme is rated and mutual funds are rated according to set of rules as listed below.
Superior Return Score (SRS)
SRS labels the returns and risks from the funds in comparison with portfolios that are similar. For example, a large-cap fund and mid cap fund cannot be compared. Only apple to apple works and is compared here.
Portfolio Concentration Analysis
Concentration, as used here means the risk faced after over-diversification. For instance, somebody investing too much funds just to have portfolio diversification, might end up having same stocks that exceeds the purpose.
Mean Return & Volatility
CRISIL only puts into consideration returns that are mean and important to funds equity, debt funding that is short term and credit opportunity funding. Mean return is the average of the daily fund returns based on VAN, whereas volatility refers to the fluctuations degree in returns.
Quality of Assets
A calculation of possibility of default by the issuer of debt security to honor debt repayment in a timely manner is done by the asset quality.
Exposure to Sensitive Sector
CRISIL puts into consideration industry risk and gives an Industry Risk Score (IRS). The score helps in analyzing the effects caused by different variables on industry and repayment of debt capacity of organization in given period.
Liquidity Analysis (LA)
It helps in assessing the ease in which a portfolio can be liquidated by a fund house. A low score means the fund is more liquid.ie equity fund LA is measured by the number of days a portfolio takes to liquidate.
This parameter is used by index funds to estimate how much a fund’s performance can increase in regard to the index that it tracks. Low tracking errors indicates positive results.
How CRISIL ranks Mutual Funds
Most ranking models use either returns or net asset value (NAV) for the specific purpose, both NAV and portfolio-based attributes are evaluated by CMFR. This avails one point analysis of mutual funds through putting into consideration the asset quality, risk-adjusted returns, liquidity, and concentration of asset.
Ranks are assigned to mutual funds on a scale of 1-5 by the agency. For example CRISIL Fund ‘very good performance’ is ranked by 1-any peer group of funds that is top 10 in percentage .Rank 2 CRISIL Fund falls under 20 percent.
CRISIL Rating from 1-star to 5-star
CRISIL’s ratings vary in accordance to different time frames, namely and numbered 3 years, 5 years or 10 years. These combinations of timelines provide a single measure of risk-adjusted to the performance of a fund. After the ratings and calculations, the agency sets stars to these funds as per their respective percentages.
5-star ratings are given to the top 10% funds, the bottom 10% funds are given a 1-star rating. The rating is a composite measure of both return and risk, which enables one figure out the capability of the funds to deliver returns, even when risks involved.
CRISIL Rating – what it means to investors
CRISIL mutual fund ranking can be relied on if one is seeking a detailed and elaborate rating system and practice since it checks every possible variable. This is the main reason why most fund houses use CRISIL ranking as their USPs. However the fund does not point one towards the most potential return.
Performance cannot be indicated by ratings, thanks to the market fluctuations which are unpredictable. This enables one to consider other metric assessment methods. If the entire process looks unreliable to you an option of well -researched and hand-picked mutual funds is available for you to check. .
Overall, CRISIL’s rating agency is recognized as number one due to its reputation for unbiased ratings and benchmarks. This gives reasons as to why many seasoned investors, as well as first-timers, opt to check the ratings and ranks before choosing a mutual fund.
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