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Adjustment in Value Research rating methodology for liquid funds

Value Research star ratings for liquid funds will no longer take risk levels into account

For close to a quarter of a century now, the Value Research fund ratings have been the most trusted and the most comprehensive in India. Conceptually, our ratings take into account the returns that funds generate, as well as the risks they take in order to generate these returns.

Now, starting from the ratings for June 2016 (announced on 1 July, 2016) onwards, we will no longer be taking risk into account while calculating ratings for liquid funds.

The reason for this is not that risk is not important. It's not even that risk is non-existent for these funds--nothing in this world is risk-free. The reason is that there is no differentiation between the risk levels of these funds. This is so because according to SEBI regulations, all liquid funds must invest only in securities that have a maximum residual maturity of 91 days.

As a result, there is no meaningful variation of risk levels between different funds. Therefore, we have removed risk scores from our methodology for these funds.

Investors are unlikely to notice any significant impact on the ratings--this change is more in the nature of fine-tuning. If there is any regulatory change in the future that makes risk levels differentiated, we will revisit this issue.

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