Ashutosh Gupta explains the reason for different ratings of two plans of the same fund
12-Nov-2021
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How can the same fund have a different rating for its Regular plan & Direct plan?
- Arnab Bhattacharjee
As we have often mentioned, the fund's rating is a quantitative measure based on the relative risk-adjusted performance with its peers in the same category.
The critical thing to note is that the direct plan is compared only to the direct plans of other funds. Likewise, the regular plan of a fund is compared only to the regular plan of other funds.
The question is what could lead to a different risk-adjusted ranking for the direct plan versus a fund's regular plan. The simple answer to that is its expense ratio. It is not rare to come across funds that rank fairly low or below average in relation to their peers in terms of the expense ratio of the regular plan. But when we move over to the direct plan, they might appear fairly high in terms of their expense ratio. Once that happens, it eats away into the returns of the direct or regular plans and impacts the relative ranking in terms of performance. This, in turn, affects the ratings of these two plans. That's why we have been saying that the expense ratio is an important consideration for you while choosing a fund. More so in the case of a debt fund.
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