{"id":162,"date":"2018-09-16T08:56:34","date_gmt":"2018-09-16T03:26:34","guid":{"rendered":"https:\/\/srinivesh.in\/blog\/?p=162"},"modified":"2018-11-24T05:07:22","modified_gmt":"2018-11-23T23:37:22","slug":"best-mutual-funds-selection-using-crisil-rankings","status":"publish","type":"post","link":"https:\/\/srinivesh.in\/blog\/best-mutual-funds-selection-using-crisil-rankings\/","title":{"rendered":"Best Mutual Funds &#8211; Selection using CRISIL Rankings"},"content":{"rendered":"<h2><span style=\"font-family: trebuchet ms, geneva, sans-serif\">Best Mutual Funds?<\/span><\/h2>\n<p><span style=\"font-family: trebuchet ms, geneva, sans-serif\">&#8216;Best Mutual Fund&#8217; is one of the most common question\/search term in personal finance. There are tons of sites that offer a list of Best Mutual Funds, Best Largecap Funds, Best Liquid Funds, etc. Most, but not all, of these sites also list the parameters that they have used to come up with their selection.\u00a0 An earlier\u00a0 post &#8211; <a href=\"https:\/\/srinivesh.in\/blog\/mf\/159\">Best Mutual Funds \u2013 Selection Guide<\/a>&#8211; looked at some parameters that can be used to shortlist &#8216;better&#8217; equity mutual funds.\u00a0 In this article we look at an easy and quick way to shortlist mutual funds using CRISIL Rankings.<\/span><\/p>\n<h2><span style=\"font-family: trebuchet ms, geneva, sans-serif\">First Things First<\/span><\/h2>\n<div><span style=\"font-family: trebuchet ms, geneva, sans-serif\">As many people say, there is no \u201cbest mutual fund\u201d; there are always \u201cmany mutual funds suitable for you\u201d. Here, suitability is based on all and more of these:<\/span><\/div>\n<ul>\n<li>\n<div><span style=\"font-family: trebuchet ms, geneva, sans-serif\">The financial goal(s) that you have<\/span><\/div>\n<\/li>\n<li>\n<div><span style=\"font-family: trebuchet ms, geneva, sans-serif\">Time available to build the corpus<\/span><\/div>\n<\/li>\n<li>\n<div><span style=\"font-family: trebuchet ms, geneva, sans-serif\">Your expected return<\/span><\/div>\n<\/li>\n<li>\n<div><span style=\"font-family: trebuchet ms, geneva, sans-serif\">Your tolerance to volatility<\/span><\/div>\n<\/li>\n<li>\n<div><span style=\"font-family: trebuchet ms, geneva, sans-serif\">Your ability to stay invested and stay focused<\/span><\/div>\n<\/li>\n<li>\n<div><span style=\"font-family: trebuchet ms, geneva, sans-serif\">and more\u2026<\/span><\/div>\n<\/li>\n<\/ul>\n<div><span style=\"font-family: trebuchet ms, geneva, sans-serif\">Some variation of \u201cbest mutual fund\u201d question is asked thousands of times every hour. It would be far more helpful if people look for <em>appropriate<\/em> mutual funds rather than <em>best<\/em> mutual funds.<\/span><\/div>\n<h2><span style=\"font-family: trebuchet ms, geneva, sans-serif\">CRISIL Mutual Fund Rankings<\/span><\/h2>\n<p><span style=\"font-family: trebuchet ms, geneva, sans-serif\">The intro to the website &#8211; <a href=\"https:\/\/www.crisil.com\/en\/home\/what-we-do\/financial-products\/mf-ranking.html\">CRISIL Ranking<\/a>&#8211; mentions this.<\/span><\/p>\n<blockquote>\n<h2><span style=\"font-family: trebuchet ms, geneva, sans-serif;font-size: 14pt\">Our methodology for CRISIL Mutual Fund Ranking (CMFR) is\u00a0based on global best practices. It was launched in June 2000 and since then it\u00a0has gained high acceptance among investors, intermediaries and asset management\u00a0companies.<\/span><\/h2>\n<\/blockquote>\n<p><span style=\"font-family: trebuchet ms, geneva, sans-serif\">The rankings use a list of factors that include returns, volatility, portfolio construction, etc. A very important point to note is that the rankings consider 3-year records for equity mutual funds. Even in the 3 year period. return for the trailing 36 months has the largest weight-age in the calculation. This can, and does, make the methodology favour recent performance over long term performance.<\/span><\/p>\n<p><span style=\"font-family: trebuchet ms, geneva, sans-serif\">The ranks themselves are straightforward. The website mentions this:<\/span><\/p>\n<blockquote>\n<h2><span style=\"font-family: trebuchet ms, geneva, sans-serif;font-size: 14pt\">The ranks are assigned on a scale of 1 to 5, with CRISIL\u00a0Fund Rank 1 indicating &#8216;very good performance&#8217;. In any peer group, the top 10\u00a0percentile of funds are ranked as CRISIL Fund Rank 1 and the next 20 percentile\u00a0as CRISIL Fund Rank 2.<\/span><\/h2>\n<\/blockquote>\n<p><span style=\"font-family: trebuchet ms, geneva, sans-serif\">So ranks 1 and 2 cover the top 30% of the mutual funds. This seems like a good enough shortlist &#8211; again if you are comfortable with using 3 year track record alone.<\/span><\/p>\n<h2><span style=\"font-family: trebuchet ms, geneva, sans-serif\">Parameters used in ranking<\/span><\/h2>\n<p><span style=\"font-family: trebuchet ms, geneva, sans-serif\">CRISIL publishes the ranking methodology used\u00a0 <a href=\"https:\/\/www.crisil.com\/content\/dam\/crisil\/generic-images1\/what-we-do\/financial-products\/mutual-fund-ranking\/CRISIL_Mutual_Fund_Ranking_Methodology.pdf\">here.<\/a><\/span><\/p>\n<p><span style=\"font-family: trebuchet ms, geneva, sans-serif\">For equity funds, the factors include: returns, volatility, portfolio construction, and others.\u00a0 Returns have a weightage of 55% and volatility has a weightage of 25%. Below is a snapshot from the document.<\/span><\/p>\n<p><span style=\"font-family: trebuchet ms, geneva, sans-serif\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-163\" src=\"https:\/\/srinivesh.in\/blog\/wp-content\/uploads\/sites\/4\/2018\/09\/crisil_parameters.jpg\" alt=\"crisil_parameters.JPG\" width=\"1390\" height=\"767\" srcset=\"https:\/\/srinivesh.in\/blog\/wp-content\/uploads\/sites\/4\/2018\/09\/crisil_parameters.jpg 1390w, https:\/\/srinivesh.in\/blog\/wp-content\/uploads\/sites\/4\/2018\/09\/crisil_parameters-300x166.jpg 300w, https:\/\/srinivesh.in\/blog\/wp-content\/uploads\/sites\/4\/2018\/09\/crisil_parameters-768x424.jpg 768w, https:\/\/srinivesh.in\/blog\/wp-content\/uploads\/sites\/4\/2018\/09\/crisil_parameters-1024x565.jpg 1024w\" sizes=\"auto, (max-width: 1390px) 100vw, 1390px\" \/><\/span><\/p>\n<p><span style=\"font-family: trebuchet ms, geneva, sans-serif\">As you can see, the time period used is 3 years. For returns:\u00a0 &#8220;The period of analysis is broken into four overlapping periods &#8211; latest 36, 27, 18 and 9 months. Each period is assigned a progressive weight starting from the longest period as follows: 32.5%, 27.5%, 22.5% and 17.5%, respectively.&#8221;\u00a0 So the 3 year performance has the highest weight.\u00a0 We can see an example of this later.<\/span><\/p>\n<p><span style=\"font-family: trebuchet ms, geneva, sans-serif\">Due to the 2018 changes in categorization, active returns (returns compared with the respective CRISIl index) is used for most funds. For simplicity, we can ignore the difference between active returns and mean returns.<\/span><\/p>\n<h2><span style=\"font-family: trebuchet ms, geneva, sans-serif\">OK &#8211; Now tell me the best mutual fund<\/span><\/h2>\n<p><span style=\"font-family: trebuchet ms, geneva, sans-serif\">This is a simple 4-step process. <a href=\"https:\/\/www.crisil.com\/en\/home\/what-we-do\/financial-products\/mf-ranking.html\">Start from the main ranking page.<\/a><br \/><\/span><\/p>\n<ol>\n<li><span style=\"font-family: trebuchet ms, geneva, sans-serif\">Select the Equity category and select Direct Plan.\u00a0 (Since we are using 3 year data, it is better to compare direct plans.)<\/span><\/li>\n<li><span style=\"font-family: trebuchet ms, geneva, sans-serif\">Choose the category\u00a0 (By default the most popular category of ELSS is selected.)<\/span><\/li>\n<li><span style=\"font-family: trebuchet ms, geneva, sans-serif\">Look at the funds with Ranks 1 and 2<\/span><\/li>\n<li><span style=\"font-family: trebuchet ms, geneva, sans-serif\">Choose one or more from them. If you want just one &#8216;best&#8217; fund, select the first one in the list.<\/span><\/li>\n<\/ol>\n<p><span style=\"font-family: trebuchet ms, geneva, sans-serif\">A screenshot for value funds is included below for illustration.<\/span><\/p>\n<p><span style=\"font-family: trebuchet ms, geneva, sans-serif\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-164\" src=\"https:\/\/srinivesh.in\/blog\/wp-content\/uploads\/sites\/4\/2018\/09\/crisil_value_snap.jpg\" alt=\"crisil_value_snap.JPG\" width=\"956\" height=\"807\" srcset=\"https:\/\/srinivesh.in\/blog\/wp-content\/uploads\/sites\/4\/2018\/09\/crisil_value_snap.jpg 956w, https:\/\/srinivesh.in\/blog\/wp-content\/uploads\/sites\/4\/2018\/09\/crisil_value_snap-300x253.jpg 300w, https:\/\/srinivesh.in\/blog\/wp-content\/uploads\/sites\/4\/2018\/09\/crisil_value_snap-768x648.jpg 768w\" sizes=\"auto, (max-width: 956px) 100vw, 956px\" \/><\/span><\/p>\n<p><span style=\"font-family: trebuchet ms, geneva, sans-serif\">If you look at the 1-year and 3-year returns of all the funds closely, you can see that funds with a better 1-year return, but lower 3-year return have lower ranks. You can also see that consistency is not very important in the rankings.<\/span><\/p>\n<h2><span style=\"font-family: trebuchet ms, geneva, sans-serif\">Conclusion<\/span><\/h2>\n<p><span style=\"font-family: trebuchet ms, geneva, sans-serif\">CRISIL rankings use 3 year performance data for equity funds. With this constraint, the rankings provide an ordered list of funds based on the relevant parameters. They can be used to quickly come up with a short list of better funds in any category.<\/span><\/p>\n<p>\u00a0<\/p>\n\n\n<p><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8216;Best Mutual Fund&#8217; is one of the most common question\/search term in personal finance.  In this article we would look at an easy and quick way to shortlist mutual funds using CRISIL Rankings.<\/p>\n","protected":false},"author":4,"featured_media":146,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_themeisle_gutenberg_block_has_review":false,"footnotes":""},"categories":[6],"tags":[30,25,29],"class_list":["post-162","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mf","tag-best-fund","tag-mutual-fund","tag-selection"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/posts\/162","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/comments?post=162"}],"version-history":[{"count":4,"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/posts\/162\/revisions"}],"predecessor-version":[{"id":318,"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/posts\/162\/revisions\/318"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/media\/146"}],"wp:attachment":[{"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/media?parent=162"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/categories?post=162"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/tags?post=162"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}