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Rating Changes

The changing market conditions over the past few years led to a lot of reshuffling in the rating of equity funds…

The past few years have truly tested the mettle of fund managers. From ridiculous highs to abysmal lows, they have seen it all. The 2008 downturn caught fund managers by surprise and the situation was once again repeated in 2009 when the market suddenly took off on an upward journey. Fund managers with substantial cash in their portfolios were completely caught off guard.

Those with large caps also suffered since it was mid and small caps that began to roll in the initial leg of the 2009 rally. Come 2010 and large caps were the outperformers.

The rapidly changing market conditions have made it difficult for funds to deliver good returns in a consistent fashion. Many of the all time favourites got thrashed while a few duds forced their way up the performance ladder. Naturally, all these moves got reflected in the star ratings of the equity funds (including tax saving funds). We compared the current rating of the funds (June 30, 2011) to their ratings three years ago (June 30, 2008). Some have seen complete turnarounds, either positive or negative.

In total 41 funds have seen upgrades, 37 have seen downgrades while 53 funds have witnessed no change in their ratings over this period. The major upgrades were in 16 funds which saw their rating go up by at least two stars. The funds that fell into this list were Canara Robeco Equity Diversified, Taurus Tax Shield and Birla Sun Life Dividend Yield, each of which gained three stars each over this period.

On the other hand, there were 16 funds which saw downgrades of at least two stars. The significant ones were - DWS Investment Opportunity, Escorts Tax Plan, Principal Tax Savings and Sundaram Select Focus Regular, each losing three stars.

Our advice to investors is to always keep an eye on the ratings of the funds. A consistent downgrade for around a year is a sign to consider moving out.