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Smart Recovery

We looked for funds that have shown an increase in their star-ratings by two or more stars over a period of last three years

The job of investment involves more than just investing. You have to track the performance of your funds continuously. Better funds can become laggards over a period of time. In fact, upon comparing the star-ratings of funds over a period of time, one would find many examples where the ratings have registered a decline, while there would be few cases where the reverse is the case.

Since our ratings reward funds for superior risk-adjusted returns over the long term, it is not easy for any fund to move up the ratings chart merely on the basis of exceptional performance over a short duration of just a few months. For this month's fund scanner, we picked the funds that have shown an increase in their star-ratings by two or more stars over a period of last three years. The ratings for the month of October 2002 were compared with that of October 2005 for the open-ended funds of three categories-diversified equity, tax planning and hybrid equity oriented. Six funds made it to our list.

Birla Equity Plan (Equity: Tax-planning): The fund started off with its rating life well, as it was rated four-star for the first few months. Subsequent to that, it lost ground as it dropped to one-star rating by November 2002. But it seems to have improved its performance after that. Year 2003 had been particularly good for the fund when it emerged as the top performer of the category with returns of 161 per cent.

Canfortune '94 (Equity: Diversified): After struggling with two- or one-star rating for a long time, this fund started to move up the ratings ladder in the beginning 2003. Since then, it held on to its three-star rating till recently, when it gained the fourth star. The improvement in ratings has come primarily as a result of its good performance in 2002 and 2003. Year 2004 was again not good for the fund as it found a place among the laggards, which will make it difficult to maintain its rating.

Magnum Contra (Equity: Diversified): After being rated below four stars only for the first eight months of its rating life, this fund has never looked back. And its sensational performance in the recent times has pushed it to the top rating since December 2004.

Canbalance II (Hybrid: Equity Oriented): This hybrid equity oriented fund does not have a bright past. However, its performance improved since 2000 when it managed to perform in line with the category average. As it continued with its average performance, its ratings improved to three-star by the start of 2003. Its rating got a further boost in the recent months as it finished the year 2004 in top quartile. But it will have to continue to perform the way it did last year to be counted among the top funds of the category.

DSPML Balanced (Hybrid: Equity Oriented): After putting up a poor show in its earlier years, this fund's fortunes turned favourable since the last quarter of 2002. As a result of top quartile performance during 2003 and 2004, the fund has witnessed its rating rise steadily to four-star. And if it continues to perform in this manner, it can give the five-star funds a run for their money.

Kotak Balance (Hybrid: Equity Oriented): October 2002 was the first month of this fund's rating life when it was rated two-star. However, that lasted only two months after which it climbed up the ratings chart to reach the top rating very recently. The fund's superlative performance during 2004, when it was ranked third in the category, enabled it move swiftly up to four-star, and then to five-star rating.