How and when is a fund's rating lowered by Value Research?

How and when is a fund's rating lowered by Value Research?

Answer transcript: Value Research ratings are a quantitative measure. They are relative ratings of funds in their category. A 5 star equity fund is very different from a 5 star liquid fund. The rating is an indication of superior risk adjusted performance of a fund in a category. If a fund really declines or turns volatile or stops delivering high returns in comparison to other funds, the fund's rating will decline. The top 12.5% of funds on a risk adjusted scale get a 5 star rating. It is possible that a fund is doing well but other funds are doing better.

Most returns measure do not encompass volatility. A fund going from 10 to 20 in 5 years time with great stability can be rated 5 star while a corresponding fund delivering the same return over the same time with greater volatility can be rated 1 star.

Finally, Value Research ratings do not incorporate any qualitative views. For that you should look at the Analyst's Choice/Fund Analysis section which appears in our magazine and our website. There we take a deeper look and reduce the number of investable funds to a smaller universe. We also talk to the Fund Manager to see how the returns have been achieved and dependable the fund is.

This article was originally published on March 27, 2017.