There are mutual fund schemes which may be rated four or five stars today and after a year, they may come down to two stars. A common investor gets into the problem of changing the portfolio which is very difficult. How to handle it?
- RS Dahiya
That is the value of a rating. Assigning star ratings is a very quantitative measure. The service delivered by rating is to change it according to the changes in the fund. I would say that don't panic on the change of ratings every now and then. It is unlikely that a fund's rating would come down from five stars to one star, overnight. It happens gradually.
It has been designed in a manner that we normally see a very gradual change in the ratings. Normally a fund would slip to four stars from five stars first, then to three stars. This also takes a long time because it's a relative performance measure. Its a relative risk adjusted performance measure. And it takes into account longer period, three and five years history. So, I would say that don't panic at the decline of a rating. But it is a pointer that you should think in terms of it. Any market linked investment would have this aspect. You can't just invest and sleep over it.