8/12/2019 Value Research Fund Rating
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What is Value Research Fund Rating?
Value Research Fund Rating (Risk-adjusted Rating) is a
convenient composite
measure of both returns and risk. It is purely quantitative and
there is no subjective
component to the Fund Rating. The assessment does not reflect
Value Research'sopinion of the future potential of any fund. It
only gives a quick summary of how a
fund has performed historically relative to its peers
How Funds are rated?
For equity and hybrid funds, the Fund Ratings for the two time
periods (3 and 5
years) are combined to give a single assessment of each funds
risk rating vis--vis
other funds in each fund category. For debt funds, the Fund
Ratings are based on
18-month weekly risk-adjusted performance, relative to the other
funds in
category.
Value Research does not rate an equity or hybrid fund with less
than 3-year
performance and a debt fund with less than 18-month performance
track record.
Each category must have a minimum of 10 funds for it to be
rated. Effective, July
2008, we have put an additional qualifying criteria, whereby a
fund with less than
Rs 5 crore of average AUM in the past six months will not be
eligible for rating.
Value Research Fund Risk Grade
The Value Research Fund Risk Grade captures the funds risk of
loss. Fund Risk
Grade is different from the conventional risk and volatility
measures like standard
deviation and beta as it indicates only downside volatility. The
latter refers to
absolute losses and even periods when the fund underperforms a
risk-free
guaranteed investment. The rationale: you can always get a
guaranteed return by
investing in a risk-free guaranteed investment like a bank
term-deposit. The risk of
investing in a mutual fund not only includes the possibility of
losing money, but
also the chance of earning less than you would have on a
guaranteed investment.
To calculate Fund Risk, monthly/weekly fund returns are compared
against the
monthly risk-free return for equity and hybrid funds and weekly
risk-free return for
debt funds. Risk-free return is defined as State Banks 45-180
days Term Deposit
Rate. For all months/weeks the fund has underperformed the
risk-free return, the
8/12/2019 Value Research Fund Rating
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magnitude of underperformance is added. This helps us to arrive
at the average
underperformance and how the fund has performed vis--vis its
category average.
The relative performance of the fund is expressed as a risk
score.
The risk score of a fund is then assigned according to the
following distribution:
High Top 10%
AboveAverage
Next22.5%
Average Middle
35%
Below
Average
Next
22.5%
Low Bottom
10%Value Research Fund Return Grade
The Value Research Fund Return Grade captures a funds
risk-adjusted return in
comparison to other funds in the category. The returns though
adjusted for
dividend, bonus or rights, are not adjusted for loads. The funds
monthly/weekly
return is compared with the monthly/weekly risk-free return to
arrive at the funds
total return in excess of the risk-free return. The monthly
average risk-adjusted
return is compared with the average category return to arrive at
the final score. In
case of a negative category average return, the risk-free return
is used as
benchmark. A score in excess of one indicates that the fund has
performed better
than its category average and vice-versa.
The return score of a fund is then assigned according to the
following distribution
High Top 10%
Above
Average
Next
22.5%
Average Middle35%
BelowAverage
Next22.5%
Low Bottom
10%
