labels: crisil, investment - general, mutual funds
CRISIL adds six new categories to measure mutual fund performancenews
20 September 2006

CRISIL has added six new categories to its FundServices' Composite Performance Rankings (CRISIL~CPRs), beginning September 2006. The six new categories will add more granularity to the ranking, and help investors make better-informed investment choices.

CRISIL~CPR is part of CRISIL FundServices' endeavour to establish the growing mutual fund industry, a credible, objective and analytically-rigorous measure for the recognition of consistent mutual fund performance. The rankings are part of CRISIL's ongoing initiatives to help deepen India's capital markets.

Among the new ranking categories, information technology (IT) funds have been included in the ranking universe since more than five schemes met the requisite criteria for new categories. The five other additions are among equity diversified, monthly income plan (MIP) and liquid schemes.

The large capital-oriented equity scheme category has been carved out of the equity diversified category. Among liquid schemes, ranking has been extended to liquid-institutional and liquid-super institutional plans. The MIP category has been rationalised into conservative and aggressive MIP.

Owing to the sheer size of the diversified equity category, its schemes have thus far been difficult to compare. Some schemes had investments focused in large cap stocks, while other schemes invested across large, mid and small cap stocks, with the result that their performances varied widely from one another.

The top 100 companies on the National Stock Exchange (NSE) were defined as large cap stocks based on their market capitalisation. Schemes investing more than 65 per cent of their assets under management in large cap companies in any 18 of the previous 24 months were classified as large capital-oriented equity schemes. CRISIL believes that the enhanced granularity in classification will help investors take better-informed decisions based on their risk return appetite.

Previously, the ranking for the liquid scheme was restricted to retail plans, keeping in view the interests of retail investors; however, investments in liquid schemes are mostly made by corporate investors. The rankings for institutional and super institutional plan are intended to fill this lacuna.

Asset management companies (AMCs) distinguish between the plans essentially on the size of the initial investment. The larger the scheme's minimum amount invested, the lower its expense ratio is likely to be. CRISIL has therefore segregated the plans based on the minimum amount invested. The retail option is, however, being retained as before. This means that in the liquid category, the investor will see the same scheme (but a variety of plans) appearing under the three liquid ranking categories.

Another category that needed sub-categorisation was MIP. MIPs are hybrid schemes that invest predominantly in fixed-income securities with some exposure to equity for capturing growth. The investment in equity ranges between 10 per cent or less, and 30 per cent. A scheme that invests 10 per cent in equity will have a different risk reward ratio compared to schemes that invest nearly a third of their assets in equity. Depending on the maximum permissible investments in equity as mentioned in the offer document, MIPs have been segregated into MIP-conservative and MIP-aggressive. The conservative category includes schemes with a maximum equity component of less than 15 per cent, whereas MIP-aggressive includes schemes with a maximum equity investment of up to 30 per cent. A common feature in both categories is the regular declaration of dividends (mostly monthly) by the AMC as the name of the category suggests.

In all the 15 categories (both old and new) put together, CRISIL ranked 252 schemes on various parameters for the quarter ended September 30, 2006. These schemes accounted for over 55 per cent of the total Indian MF industry's assets under management as on that date.


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CRISIL adds six new categories to measure mutual fund performance