Crisil Rating For Mutual Funds
One of India’s leading credit rating agencies, CRISIL, has a dedicated rating model for mutual funds also, apart from debt and infrastructure projects, where they specialize. The CRISIL model essentially ranks mutual funds based on various parameters. Rating plays a crucial role in determining the authenticity of the fund and its ability to perform in the future. While ratings are not a guarantee of future returns or performance, they tend to give a lot of confidence in the minds of investors.
Can you tell me about the crisil MF ranking
CRISIL rating for mutual funds allows investors to compare and evaluate the best performing funds in the market at any given point of time. The agency evaluates mutual funds on two types of parameters that include qualitative and quantitative. In short, it covers the hard factors and the soft factors too.
The advantage of the CRISIL ratings is that they are not just useful to investors, but they are also beneficial for asset management companies and intermediaries. Even advisors closely look at these rankings before recommending these funds to their investors. This ranking facility allows the advisors to offer the best scheme to prospective investors. For the purpose of rating the mutual funds, CRISIL comes under the ambit of SEBI regulation.
What are the parameters on which crisil ranks funds?
The CRISIL Mutual Fund Ranking (CMFR) ranks schemes of equity, debt and hybrid funds based on well accepted global best practices. Here are the 3 key parameters that they use to rank mutual funds.
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Three year and one-year Net Asset Value (NAV). Some presence and pedigree is essential to be ranked and to enable a proper ranking.
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Assets under management (AUM) in the excess category of cut-off limits. AUM indicates the size and success of a fund house. Automatically, very small AUM funds are not included to give a proper picture.
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Complete Portfolio disclosure is mandatory. CRISIL does not rate fund that do not give periodic disclosure of their entire portfolio.
Is the above criteria same for all the funds or does it differ?
Here are the fine-tuned criteria based on which the funds are included.
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Ratings are given only to open-ended mutual funds. Therefore any interval fund, ETFs and closed ended funds are not under the purview of
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NAV includes three-year and one-year mutual funds. It will be– Three-years in case of dynamic, medium to long, equity, hybrid, gilt, and medium duration funds. One-year NAV for Arbitrage, corporate funds, short-duration funds (liquid funds), funds of banking or PSU sector and credit risk funds.
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Equities with AUM cut-offs of Rs. 10 crores, Debt and Hybrid with AUM cut-off of Rs. 50 Crores and Debt funds (of less than one-year maturity including money market, ultra-short-term, & liquid funds) should have AUM cut-off of Rs. 250 crores
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Equities with AUM cut-offs of Rs. 10 crores, Debt and Hybrid with AUM cut-off of Rs. 50 Crores and Debt funds (of less than one-year maturity including money market, ultra-short-term, & liquid funds) should have AUM cut-off of Rs. 250 crores
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There should be Portfolio disclosure for three years as of the last quarter
What are the parameters that crisil follows for ranking of mutual funds?
Here are some of the key parameters that CRISIL follows in its ranking methodology
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Portfolio Concentration Analysis: This involves the risks faced due to improper or over-diversification. For debt funds, the concentration is analysed at the individual level, while the diversification score analyses the industry and company concentration.
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Liquidity Analysis: Using this parameter, the rating agency measures the liquidity level of a mutual fund scheme. CRISIL takes into consideration the portfolio liquidity score for the past three months. In case of corporate debt funds, the agency classifies the security into categories including semi-liquid and illiquid. The agency analyses fund’s liquidity based on the exposure of the scheme to these categories. A low score means more liquidity.
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Mean Return and Volatility: CRISIL uses mean returns to determine the average daily returns of the fund’s NAV, while volatility helps to know the deviation of the returns. As mentioned in the eligibility criterion, the period of the analysis is three-years for equity hybrid & debt fund. At the same time, it is one year for corporate bonds, credit risk, PSUs and other short-duration categories.
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Active Returns: CMFR (CRISIL Mutual Fund Ranking) incorporates this parameter for equity fund categories that include mid-cap, large-cap, multi-cap, large and mid-cap and focused and value/contra funds. The active returns are the percentage of loss or profits made by an investment portfolio as a result of active investment decisions by the fund manager.
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Tracking Error: This measures the variations of a scheme’s performance by comparing it with the index that it tracks. CRISIL uses this factor for index schemes. A low tracking error indicates a better performing scheme. Tracking error is direction agnostic and any deviation; be it positive or negative is considered bad for index funds.
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Count of negative returns: This parameter is mainly used for arbitrage mutual funds, wherein the agency measures the downside risks of the funds.
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Exposure to the sensitive sector: The CRISIL Mutual Fund Ranking analyses the risk factor of fund schemes depending on industry risk scores (IRS) for various sectors. The score assesses the credit risk associated with the industry on a uniform scale. IRS captures the industry influence on the repayment ability of the companies.
How the crisil mutual fund ranking helps investors?
The credit score of the mutual funds helps to make investment decisions. The score allows investors to decide when to buy, sell or hold a mutual fund unit. A high credit rating indicates the credibility of a unit, as well as lets the investors know risks associated with it.
Apart from investors, even mutual fund analysts and advisors heavily rely on these CRISIL rankings to take a view and recommend appropriate funds to investors.
What is the process by which crisil ranks mutual funds?
This is the last part of the ranking process. CRISIL Mutual Fund Ranking includes ranking for different funds such as debt, equity, and hybrid category. CRISIL uses portfolio-based attributes and NAV of the fund to rank the funds. The agency ranks mutual funds from a scale of 1 to 5. In each category, CRISIL ranks top 10 percentile for funds under rank 1, while the top 20 percentile falls under rank 2.
Before investing in mutual funds, note that CRISIL rating should not be the only deciding factor for investment. You can use the score as a large filter to identify the quality & the overall health of a mutual fund scheme. There an element of discretion and portfolio that has to be considered in the final analysis.