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Crisil ratings: a good criterion for MF investors news
14 November 2011

Crisil's ranking of mutual funds provides useful insights; but one should know the parameters it uses for these rankings, says  MF advisor Sanjay Matai

Sanjay MataiCrisil, an independent analytical and ratings company, provides a quarterly ranking of the relative performance of various mutual fund schemes across different categories. Only open-ended funds are considered for ranking; and further they have to have

a) A minimum two-year NAV (net asset value) history (one year for liquid, ultra short-term debt, short-term debt and index funds),

b) AUM above a certain specified limit (eg Rs50 crore for equity and liquid funds, Rs25 crore for ELSS, income, gilt, ultra short-term debt and MIP funds, Rs15 crore for balanced funds, Rs10 crore for index funds),

c) Complete portfolio disclosure

The parameters which determine the ranking include the following:

Superior return score: This is the measure of the relative return and risk of a particular fund vis--vis the peer group.

Mean return and volatility: Mean return is the average daily return. Volatility is the standard deviation of these returns; the higher the standard deviation the more volatile the fund.

Portfolio concentration analysis: Both industry and company concentration is measured to ascertain whether the fund is adequately diversified. Higher concentration increases the fund risk.

Liquidity analysis: This determines the ease with which the fund can be liquidated. This is important in case there is sudden redemption pressure on the fund.

Asset quality: This is particularly important in case of debt funds and measures the probability of default by the issuer of the debt.

Modified and average maturity: This parameter too is relevant for debt funds and shows how susceptible the fund is to interest rate movements; the longer the maturity, the more the fund volatility due to changes in interest rates.

Downside risk probability (DRP): This measures the probability of earning lower returns than the short-term risk free investment (such as a 91-day T-bill).

Asset size: Considered for ultra short-term debt and liquid funds, it determines the impact of large inflows/outflows on the fund performance and the ability to manage these large flows. The higher the asset size, the better it is.

Tracking error: This is used for index funds to measure how closely they are able to track the underlying index. The lower the error, the better it is.

The ranking - for any given category - is from 1 to 5; 1 denoting 'very good' (top 10 percentile) performance and 5 'relatively weak' (bottom 10 percentile) performance.

Based on the foregoing, the top three funds for the quarter ended June 2011 amongst the various categories are given below:

Jun 11 Rank Mar 11 Rank Superior Return Score Industry Concentration Company Concentration Liquidity
Weightages
75%
10%
5%
10%
Large Cap Equity Funds (> 75% in top 100 stocks)
Fidelity Equity Fund
1
1
1(1)
2(3)
1(1)
4(4)
Fidelity India Growth Fund
1
1
1(1)
4(5)
2(2)
5(4)
HDFC Top 200 Fund
1
1
1(1)
4(4)
2(2)
3(3)
Diversified Equity Schemes
HDFC Equity Fund
1
1
1(1)
3(3)
3(3)
3(3)
ING Dividend Yield Fund
1
1
1(1)
4(4)
3(3)
3(3)
Mirae Asset India Opp. Fund
1
1
1(1)
2(3)
2(2)
2(3)
Small and Mid Equity Schemes (< 45% in top 100 stocks)
Birla Sunlife MNC Fund
1
2
1(2)
5(5)
5(5)
4(5)
HDFC Mid-cap Opp. Fund
1
1
1(1)
4(4)
2(3)
3(4)
Religare Mid-cap Fund
1
n.a.
1
3
2
3
Infrastructure Equity Schemes
Birla Sunlife Basic Ind. Fund
1
1
1(1)
2(1)
1(1)
3(3)
DSPBR Nat. Res & New Energy
1
2
1(2)
5(5)
3(3)
2(3)
AIG Infra. and Eco. Reform
2
2
2(2)
1(2)
3(4)
2(2)
ELSS Schemes
80%
10%
5%
5%
Fidelity Tax Advantage Fund
1
1
1(1)
3(3)
2(2)
4(3)
HDFC Tax Saver Fund
1
1
1(1)
1(1)
2(2)
4(5)
ICICI Prudential Tax Plan
1
1
1(1)
2(2)
3(2)
5(5)
Index Schemes
Kotak Sensex ETF
1
2
Nifty BeEs
1
1
Franklin India Index Fund - BSE Sensex Plan
2
3




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Crisil ratings: a good criterion for MF investors