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Varying Ratings of a Fund

Understand why the ratings of a fund can be different for its institutional & retail variants…

I was planning to invest in BNP Paribas Overnight Fund, but the difference in rating on this fund’s institutional version and retail version is confusing. Why such a huge difference in ratings?

Rahul Patange

The Value Research rating is based on a composite score that is arrived at on the basis of risk-adjusted performance of the fund. The risk is the same in case of the institutional as well as retail variant of the fund scheme. However, return varies because of expenses incurred in managing the schemes.

For instance, the retail variant of BNP Paribas Overnight had an expense ratio of 1.20 per cent compared to 0.44 per cent for the institutional variant as on June 30, 2012.The impact of the expense ratio is reflected in the rating because a lower expense ratio translates into higher returns for the institutional plan investors, which is reflected in its ratings. It is for this reason that the institutional plan has a 5-star rating compared to the retail plan which carries a 2-star rating.

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