The Value Research Fund Ratings help you choose funds on the basis of their & their peers' performances
17-Sep-2008 •Research Desk
So, which movie do you wanna catch this weekend?"
"Well, there's Dil Ek Dariya starring MRK and also Kal Kya Hoga, which has Balwan Khan in it."
"Hmmm yeah, both seem to be good films. And both have been directed by established directors too."
"Yeah, well, let's go for Dil Ek Dariya. It's been given 5-stars; it's got to be good."
That is one conversation we can all relate to. Most of us have probably had it ourselves many times over. Choosing which movie to watch is not an easy thing to do. There's so much to consider and so much at stake. The actors, the director, the storyline, the theme and other such attributes make it a difficult choice, especially when two movies have a similar kind of backing. And of course, making the right choice is important because we don't want to come back disappointed and un-entertained. That is probably why most of us prefer to read the movie reviews and see how many stars it has been rated with, before we venture out to a multiplex.
Choosing a movie on the basis of its rating is easy, just as choosing a mutual fund becomes easy with the help of the Value Research Fund Rating. We all know that choosing a mutual fund to invest in is not a simple task. To begin with, you need to check returns and pick out funds that have beaten their benchmark as well as the category averages consistently, year after year. Usually higher returns are accompanied by higher risk, but how does one compare the risk of one fund with another? With 210 open-ended diversified equity funds alone, it only gets more confusing. Well, we offer you a simple solution - just check how the funds have been rated in the Value Research Fund Rating.
The Value Research Fund Rating is a composite and objective measure of both returns and risks. This single measure combines the Value Research Fund Risk Grade and the Value Research Fund Return Grade to give an indication of a funds risk-adjusted return on a scale of 1-star to 5-stars, with the 5-star rating being the best. The Fund Ratings are totally free from biases and are based only on the fund's performance and the performance of its peers. Our methodology makes the rankings devoid of any individual opinion or view.
Funds have to fulfil a certain criteria for them to be rated. Equity and hybrid with less than 3-years performance record and debt funds with less than 18-months performance record are not rated. Furthermore, each fund category must have a minimum of 10 funds to be rated. And effective from July 2008, an additional criterion has been added, whereby, a fund with less than Rs. 5 crore of average assets under management in the past six months will not be eligible for rating.
The Value Research Fund Rating makes fund selection easy. Identifying good funds becomes simpler and focusing on just 4-star and 5-star rated funds will give you enough options to choose from. The final decision, however, should be made by the investor on the basis of his requirements. You will often come across funds, which have significantly different investment styles, but have the same rating. A high-risk high-return fund as well as a low-risk low-return fund can have the same risk-adjusted returns and hence, the same rating. What you choose would depend on your investment needs, but the Fund Rating can certainly help you narrow down to the few best performing funds.
In a nutshell, the Value Research Rating summarises how a fund has performed historically, relative to the other funds in its category, for the risks it has taken.