Maximising Your Investments with CRISIL Mutual Fund Rankings

Mutual funds are one of the most popular investments in India. Being a relatively safe financial instrument offering decent returns, mutual funds form a significant portion of investments for most people.

If you, too, invest in mutual funds, you must wonder if there is a way to make your investments worthwhile. How can you ensure that you invest your money in a trustworthy mutual fund scheme? CRISIL mutual fund rankings are the answer to all your concerns. 

So, let’s see what CRISIL mutual fund rankings are, their benefits, and how they can help maximise your investments.

What are CRISIL mutual fund rankings?

CRISIL stands for “Credit Rating Information Services of India.” It is primarily a credit rating agency but also has a trusted mutual fund ranking system.

The CRISIL mutual fund rankings started in June 2000 and quickly became one of the coveted means of assessing companies’ performance. Their methodology considers global best practices and has seen wide acceptance by many stakeholders, including asset management companies, financial experts, and investors.

The categories that the CRISIL rating system covers are across multiple classes, such as equity, debt, and hybrid assets. While contemporary ranking models consider returns or net asset value, CRISIL mutual fund rankings go a step further. 

CRISIL evaluates specific portfolio-based attributes along with net asset value. This gives an easy overview of mutual funds, showing the most important parameters like risk-adjusted returns, asset quality, and more.

The CRISIL rating then ranks each mutual fund on a scale from one to five, with one being excellent and five indicating abysmal performance.

What are the different parameters used by CRISIL to rank mutual funds?

Here are some parameters that CRISIL uses to rank different mutual funds:

1. Mean return and volatility: Mean return denotes the average daily return, and volatility measures the standard deviation of the returns.

2. Active return: Similar to mean return, active return denotes returns for large-cap, large and mid-cap, multi-cap, and mid-cap, focused exclusively on equity funds.

3. Portfolio concentration: Measures the risk due to improper diversification. Equity funds have measurements of company and industry diversification, while debt funds have an individual issue-specific limit.

4. Exposure to sensitive sectors: Exclusive to debt funds, it shows the risk associated with sensitive sectors. It usually covers a period of three to four years on the debt repayment capacity using different industry variables.

5. Liquidity analysis: Measures how easy it is for the portfolio to be converted to cash. A lower score denotes better liquidity.

6. Asset quality: Measures the probability of default for debt funds. Shows how likely an issuer might default on their debt.

7. Duration: Measures the interest rate of a portfolio. Lower values have better interest rates.

8. Tracking error: Unique to index funds, it shows the variability of the index’s performance. Like other values, the lower the score, there is less error.

9. Count of negative returns: Unique to arbitrage funds, it captures the downside risk of the funds.

Now that you understand how CRISIL mutual fund rankings scores work, let’s see how the CRISIL credit ratings work. 

What are CRISIL credit ratings?

As mentioned earlier, CRISIL is also a credit rating agency. CRISIL credit rating shows the creditworthiness of companies and the risk associated with their various debt instruments. 

CRISIL credit rating helps investors assess a company’s probability of settling repayment obligations on time. These ratings are in accordance with the Government of India’s rating system. For CRISIL mutual fund rankings, the rating scales from “CRISIL AAA” to “CRISIL D” are available. 

See the detailed CRISIL rating list below:

1. CRISIL AAA

2. CRISIL AA

3. CRISIL A

4. CRISIL A1

5. CRISIL A2

6. CRISIL C

7. CRISIL D

The AAA rating signifies the highest safety levels. Only the debt instruments with the highest probability of making timely interest and principal payments get this rating. In addition, such instruments can even withstand adverse economic conditions. So, as a mutual fund investor, you can feel confident that investing in CRISIL AAAs will have a better outcome. 

However, rankings below A1 are for instruments with a moderate probability of making interest and principal payments. Besides, their ability to do so may hamper them during severe economic crises. Rankings of C and D signify the worst levels of safety for a debt instrument to meet its financial obligations.  

How can CRISIL mutual fund and credit ratings help you maximise your investments?

Here are some ways you can use CRISIL mutual fund rankings and credit ratings to make smarter investment decisions:

1. Invest in best-performing mutual funds

Plenty of mutual funds are in the market, but which one should you invest in? CRISIL mutual fund rankings help you make that decision by making shortlisting of top funds easier. You easily identify performing funds by simply looking at their ranking, i.e., 1 to 5. 

2. Assess the risk associated with debt instruments

While mutual fund ratings help you assess the yield capacity of a fund, credit rating will help you evaluate the creditworthiness of a fund’s underlying debt instruments. You can determine the default risk of these securities before investing. And, at the same time, assess the probability of earning timely returns. 

3. Data-backed investment decisions

With CRISIL scores, you can see how funds have performed over time. For example, if you like a particular fund and are unsure if it has performed well, you can compare its timeline across the years. See if the fund has consistency in its ranking, and if it is, then you can invest in it as it has more potential to see returns. 

Using CRISIL for investments 

Agencies like CRISIL help you make smarter investment decisions by ranking mutual funds, companies, and their debts based on factors like the probability of repayment, creditworthiness, and level of risk. You can simply refer to the rankings, pick the investments that align with your financial goals, and invest. 

While CRISIL is best at what it does, you can also use the help of professionals to get advice on your mutual fund investments. At Tata Capital, our team of expert professionals will help you find the best mutual fund investments, loans, and insurance tailored to your needs. Visit our website to know more.