Crisil Mutual Fund Ranking: Meaning, Parameters, & Criteria

CRISIL, a top Indian credit rating agency, employs a specialized model for rating mutual funds, in addition to its focus on debt and infrastructure projects. This model evaluates mutual funds using diverse criteria, playing a vital role in establishing the fund’s credibility and future performance potential. It’s important to note that while ratings don’t guarantee future returns, they instill confidence in investors by providing an assessment of the fund’s authenticity and capabilities.

What is Crisil?

Established in 1987, Credit Rating Information Services of India Limited (CRISIL) stands as India’s pioneer credit rating agency, with ICICI Ltd, UTI, and other financial institutions as its promoters. A global analytics leader, CRISIL offers a suite of services including ratings, research, data, solutions, and analytics. Boasting a robust global presence, CRISIL serves over 1,00,000 satisfied customers, delivering actionable insights and independent opinions. S&P Global Inc. holds the majority stake in the company.

Rooted in core values of integrity, excellence, accountability, teamwork, and respect, CRISIL caters to a diverse clientele, spanning large corporations to micro, small, and medium enterprises, global financial institutions, investors, and government bodies. The company collaborates with policymakers in India’s infrastructure sector and other emerging markets.

What is the Crisil Mutual Fund Ranking?

CRISIL ratings for mutual funds enable investors to assess and compare the market’s top-performing funds. CRISIL evaluates funds based on qualitative and quantitative parameters, encompassing both hard and soft factors. These ratings benefit not only investors but also asset management firms and intermediaries. Advisors rely on these rankings when suggesting funds, ensuring they recommend the most suitable options. CRISIL’s mutual fund ratings fall under SEBI regulation.

How Does the Crisil Mutual Fund Ranking Work?

Crisil Mutual Fund Ranking or CMFR goes beyond conventional ranking models, assessing mutual funds by analyzing not only net asset value (NAV) but also portfolio-based attributes. This comprehensive approach provides a singular evaluation incorporating asset quality, risk-adjusted returns, liquidity, and asset concentration. The rating system assigns ranks or star ratings on a 1 to 5 scale. For example, CRISIL Fund Rank 1 signifies ‘excellent performance,’ placing a fund in the top 10 percentile of its peer group, while CRISIL Fund Rank 2 covers the subsequent 20 percentile.

What are the Parameters for Crisil Mutual Fund Ranking?

CRISIL employs a robust methodology to assess mutual fund schemes, considering key parameters for Crisil MF rankings:

Superior Return Score (SRS)

• Measures a fund’s returns and risks relative to similar portfolios.
• Enables comparisons between funds of the same category.

Industry Risk Score (IRS)

• Evaluates industry risks for debt funds.
• Assesses a fund’s ability to meet debt obligations within a specific timeframe.

Mean Return & Volatility

• Mean return gauges a fund’s average daily returns over a specified period.
• Volatility measures the variation in returns, providing insights into risk.

Portfolio Concentration Analysis

• Over-diversification can lead to concentration risks, reducing the effectiveness of diversification.
• Funds with excessive portfolio diversification receive lower mutual fund ranking Crisil in this analysis.

Liquidity Analysis

• Assesses how easily a fund can liquidate holdings.
• Lower liquidity score indicates higher liquidity, facilitating easy redemption or trading.

Quality of Asset

• Evaluates the creditworthiness of issuers and overall risk in debt security investments.
• Reflects the likelihood of issuer defaulting on timely debt repayment.

Tracking Error

• Measures how accurately an index fund tracks its benchmark.
• A low tracking error signifies precise tracking of the benchmark.

Counting of Negative Returns

• Primarily used for arbitrage funds to evaluate downside risks.

In summary, CRISIL’s evaluation encompasses crucial factors such as returns, risks, industry considerations, volatility, diversification, liquidity, asset quality, tracking precision, and downside risks, providing investors with a comprehensive understanding of top rated mutual funds’ performance.

Criteria of Crisil Mutual Fund Ranking

Here are the specific criteria guiding the inclusion of funds:

• Ratings are exclusively assigned to open-ended mutual funds; interval funds, ETFs, and closed-ended funds are not considered.
• Net Asset Value (NAV) is calculated over three years for dynamic, medium to long, equity, hybrid, gilt, and medium duration funds. For Arbitrage, corporate funds, short-duration funds (liquid funds), funds of banking or PSU sector, and credit risk funds, the NAV is calculated over one year.
• Equities with an Asset Under Management (AUM) cutoff of Rs. 10 crores, Debt, and Hybrid with an AUM cutoff of Rs. 50 crores, and Debt funds (including money market, ultra-short-term, & liquid funds) with less than one-year maturity should have an AUM cutoff of Rs. 250 crores.
• Portfolio disclosure for three years is required as of the last quarter.

This ensures a comprehensive evaluation of funds, considering their structure, performance, and financial parameters.

Crisil Ranking for Mutual Funds from 1 to 5 Stars Rating

CRISIL rates funds on three, five, or ten-year performance, offering a consolidated measure of risk-adjusted performance. Following the assessment, funds receive star ratings based on percentiles. The highest-performing 10% receive 5 stars, while the lowest 10% get a 1-star rating. These ratings, encompassing return and risk, aid investors in gauging a fund’s capacity to generate returns amidst varying risks.

What Does the Crisil Rating Mean to Investors?

CRISIL ratings offer a reliable and comprehensive assessment by scrutinizing various factors, making it a preferred choice for many fund houses. However, it’s essential to note that these ratings don’t necessarily indicate higher return potential due to market unpredictability. To gauge performance, consider additional assessment metrics alongside CRISIL ratings. Explore our curated and highest rated mutual funds from top fund houses, selected based on CRISIL ratings, past performance, liquidity, and Sharpe Ratio. In summary, CRISIL’s global reputation as an unbiased rating agency makes it a go-to for both experienced and novice investors when evaluating mutual funds.

How is CRISIL Rating Used in Investment Decisions?

The CRISIL rating assesses an organization’s financial health, gauging its consistent ability to meet liability obligations on time. Regular updates by CRISIL make it a valuable resource for investors facing time or resource constraints, aiding informed investment decisions.

What Does the Crisil Rating Mean to Depositors?

CRISIL evaluates various financial instruments, including fixed deposits. When considering a fixed deposit, investors typically prioritize a high interest rate. It’s crucial to note that fixed deposits lack government backing, exposing depositors to market risks.

CRISIL assigns ratings to different financial institutions and fixed deposits, aiding depositors in selecting options with both safety and appealing interest rates. These ratings range from FAAA (highest) to FD (lowest). Understanding these ratings empowers investors to make informed choices.

Scales of the Crisil Mutual Fund Ranking

Long-Term Ratings

CRISIL assesses long-term instruments such as debentures, bonds, and bank loans with maturities exceeding one year. Ratings range from ‘CRISIL AAA’ to ‘CRISIL B’ on a 20-point scale.

Short-Term Ratings

For instruments with a maturity of one year or less, like certificates of deposits and commercial paper, CRISIL uses a 9-point scale from ‘CRISIL A1’ to ‘CRISIL A4’ and ‘CRISIL D’ for defaults.

Dual Ratings

Certain debt instruments with a maturity beyond one year and an exercisable put option within a year receive dual ratings. The first component reflects timely payments, while the second component indicates payment likelihood when the put option is exercised, denoted by ratings like ‘CRISIL AA+’ and ‘CRISIL A1+’.

Structured Obligation Ratings (SO)

Reserved for short-term and long-term structured finance instruments, SO applies to asset-backed or securitized transactions. Ratings range from ‘CRISIL AAA (SO)’ to ‘CRISIL D (SO)’ for long-term, and ‘CRISIL A1 (SO)’ to ‘CRISIL D (SO)’ for short-term.

Credit Enhancement Ratings (CE)

Assigned to instruments with explicit external credit enhancement, but not considered bankruptcy remote from the issuer/originator. Ratings range from ‘CRISIL AAA (CE)’ to ‘CRISIL D (CE)’ for long-term, and ‘CRISIL A1 (CE)’ to ‘CRISIL D (CE)’ for short-term.

Fixed Deposit (FD) Ratings

CRISIL rates fixed deposits of banks, financial institutions, and corporates on a 14-point scale, prefixed by ‘F’ and ranging from ‘FAAA’ to ‘FD.’

Financial Strength Ratings

Specifically for insurance companies, these ratings range from ‘AAA’ to ‘D.’

What Does the Crisil Mutual Fund Ranking Mean for MFs?

Launched in 2000, the Crisil Mutual Fund Ranking (CMFR) has become widely accepted in the financial industry. Covering various asset classes such as debt, equity, and hybrid, CMFR employs global best practices to assess mutual funds. It evaluates crucial factors like asset concentration, quality, risk-adjusted returns, and liquidity, offering a comprehensive single-point analysis.

Crisil assigns ranks on a scale of 1 to 5, with Rank 1 denoting excellent performance. The top 10% of funds in a peer group receive Crisil Fund Rank 1, while the next 20% are designated as Crisil Fund Rank 2. This system aids investors in identifying funds with the potential for significant returns.

Crisil ratings consider different time frames, such as three, five, or ten years, providing a measure of a fund’s risk-adjusted performance. The combination of these timelines determines the fund’s star rating based on percentiles.

These ratings, encompassing both risk and return, serve as a composite measure, assisting investors in evaluating a fund’s capacity to generate returns. For those considering mutual fund investments, Crisil ratings offer valuable insights into making informed investment decisions.

What is the Difference Between a Credit Rating and Credit Score?

Credit rating focuses on a company’s ability to repay debts, using alphabetical symbols, while credit score evaluates an individual’s creditworthiness numerically. Higher ratings or scores indicate lower risk, influencing loan or credit card approvals.

Aspect	Credit Rating	Credit Score
Definition	Assesses a company or business’s creditworthiness	Calculates an individual’s creditworthiness
Applicability	Applies to companies or businesses	Pertains to individuals
Information Source	Based on corporate financial instruments	Derived from an individual’s credit information
Representation	Represented by alphabetical symbols (AAA, AA, A)	Represented by a numerical range (300 to 900)
Probability of Default	Higher ratings imply a low probability of default	Higher scores indicate lower credit risk
Rating Scale Interpretation	AAA is a good rating; below BB is bad credit rating	Higher scores are favorable for loan or credit card approval

To Wrap It Up…

Crisil evaluates mutual funds across debt, equity, and hybrid categories using portfolio-based attributes and the fund’s NAV. The ranking scale ranges from 1 to 5, with the top 10 percentile earning a rank of 1 and the top 20 percentile securing a rank of 2.

It’s crucial to recognize that the Crisil rating shouldn’t be the sole determinant for investment decisions in mutual funds. Instead, consider it as a broad filter to gauge the quality and overall health of a mutual fund scheme. The final analysis should account for discretion and portfolio specifics.

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