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Summary: Value Research's latest fund ratings are out, and this month's upgrade list is a short one. Only two funds managed to add a star to their name. We look at what worked in their favour.
Value Research is back with a fresh set of mutual fund ratings. While most funds held their ground, some slipped and some climbed. This time, though, the upgrade list is unusually short: just two funds saw their ratings move up in June. Before we reveal which ones made the cut, here's a quick refresher on how these ratings are arrived at.
Our rating framework
The Value Research Fund Rating is a convenient composite measure of both returns and risk. It combines the Value Research Fund Return Grade and the Value Research Fund Risk Grade into a single number that indicates a fund's risk-adjusted performance within its category.
Here's how it works. For all funds in a category, individual return scores and risk scores are calculated. A fund's risk score is then subtracted from its return score to yield a composite risk-adjusted performance measure that forms the basis for the rating.
The scores for two time periods are combined to give a single assessment of each fund's standing within its category. For equity and hybrid funds, a 60 per cent weight is assigned to the five-year score and a 40 per cent weight to the three-year score. The resulting composite scores are then translated into a star rating.
Now, let's look at the funds that received a ratings upgrade in June.
Bank of India Flexi Cap Fund: 4 to 5 stars
The Bank of India Flexi Cap Fund ranks fifth and third across three-year and five-year SIP return periods, respectively. While its three-year SIP returns stand at 13.7 per cent, its five-year returns stack up to a healthy 18.2 per cent. In fact, it has outpaced its benchmark, the BSE 500 TRI, by over 7.5 percentage points per year in recent years.
What's more, over five-year rolling return periods, the fund has consistently outperformed its peers and the index, delivering returns of 18.2 per cent versus the category's 13.4 per cent and the BSE 500 TRI's 12.3 per cent.
Notably, the fund doesn't carry a very high large-cap tilt either. Around 51 per cent of its portfolio is invested in large-cap stocks, compared to the category average of nearly 59 per cent, while its top 10 holdings account for only 30.4 per cent of its portfolio.
HSBC Large and Mid Cap Fund: 3 to 4 stars
This fund ranks third and fourth in terms of three-year and five-year SIP returns, respectively. While its three-year SIP returns were 15 per cent, its five-year returns were 17.6 per cent.
Its long-term record is impressive, too. Since February 2006, the HSBC Large and Mid Cap Fund has stayed ahead of its category, reporting five-year rolling returns of 17.5 per cent, compared to the category's 15.3 per cent and the benchmark's (BSE Large Mid Cap TRI) 11.7 per cent.
Should you invest in any of these funds?
A ratings upgrade is encouraging, but it shouldn't be the sole factor determining whether you invest in, or exit, a fund. Multiple factors, such as your investment horizon, risk appetite and financial goals, need to be taken into account as well.
And if you need further guidance on whether any of the above-mentioned funds deserve a spot in your portfolio, consider subscribing to Value Research Fund Advisor. Get access to our analyst-backed fund recommendations, personalised advice and portfolios tailored to your needs.
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