Evaluating funds based on star ratings is a good start to buying and exiting funds
02-Mar-2011 •Research Desk
What is the way to exit without incurring a loss if we invest in a mutual fund with a 5-star rating that over a period falls to 2-star.
- Dr. Sundeep
The Value Research fund rating is a composite measure of both returns and risk. 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. This rating is purely quantitative and there is no subjective component to it. It is a unified performance measure and summarises how a fund has performed historically, relative to the other funds in its category, for the risks it has taken. The rating does not shift from a 5-star to 2-star directly. The fall is gradual and is an indication of the deteriorating performance of the fund. If one tracks the star rating of funds, it is a good sign when a fund starts to move from 4-star to 3-star than waiting for it to fall to 2-stars.