Understanding CRISIL Mutual Fund Ranking

Have you ever wondered how mutual funds earn those star ratings that guide your investment decisions? Today, we’re here to demystify the process, focusing on the star ratings provided by CRISIL and Value Research.
Many popular investment platforms like Groww, Etmoney, Kuvera, and others trust data from CRISIL and Value Research. Today, we’ll explore the reasons behind the widespread trust in their ratings and understand the criteria that make them pivotal for assessing mutual funds on various investment platforms.

What is the CRISIL Mutual Fund Ranking?

Think of it as a ranking system, like a leaderboard for mutual funds within their peer groups. It helps you quickly see how well a fund has performed compared to others in its category, like large-cap, mid-cap, or debt funds. The higher the ranking, the better the past performance!

How Does CRISIL Rank Mutual Funds?

Here’s a closer look at the key steps involved in the CRISIL Mutual Fund Ranking (CMFR) methodology:

Focus on Risk and Return: At its core, CMFR evaluates two primary factors:
    • Mean Return: This measures the average daily returns generated by a fund over a specific period, based on its net asset value (NAV). It’s like calculating the overall profit a fund has made for its investors.
    • Volatility: This measures the degree of fluctuation in a fund’s returns, representing the level of risk involved. Imagine it as the bumpiness of the investment ride. volatility is the standard deviation of the returns.
Timeframe Flexibility:

CMFR doesn’t just look at a single snapshot in time. It considers different timeframes to provide a more comprehensive assessment:

      • Three-year analysis: This applies to most mutual fund categories, including equity, hybrid, debt, and gilt funds.
      • One-year analysis: This is used for liquid funds, which typically have shorter investment horizons.
Progressive Weighting:

To ensure that the most recent performance is given appropriate importance, CMFR breaks down the analysis period into four overlapping segments:

    • For three-year analysis, the weights are 32.5% for the latest 36 months returns, 27.5% for the latest 27 months returns, 22.5% for the latest 18 months returns, and 17.5% for the latest 9 months returns. Around 60% weightage is give for last 46 and 27 Months returns.
    • For one-year analysis, the weights are 32.5% for the latest 12 months, 27.5% for the latest 9 months, 22.5% for the latest 6 months, and 17.5% for the latest 3 months.
Additional Parameters for Equity Funds:

Recognizing the nuances of equity investments, CMFR also considers:

    • Company Concentration: This measures how much a fund’s portfolio is invested in a few select companies, assessing diversification risk.
    • Industry Concentration: This measures how much a fund’s portfolio is focused on specific industries, again evaluating diversification.
    • Liquidity: This measures how easily investors can buy or sell units of the fund without significantly impacting its price, ensuring ease of transactions.

By combining these factors and adjusting for different timeframes, CRISIL Mutual Fund Ranking provides a comprehensive and dynamic assessment of mutual fund performance, helping investors make informed decisions based on their risk tolerance and investment goals.

How Value Research Mutual Fund Ranking Works

Unlike CRISIL’s dual focus on risk and return, Value Research shines a single, composite star, encompassing both within its radiant glow. Let’s delve into their methodology and understand how they illuminate the path towards informed investment decisions.

1.How Value Research Measures Performance

  • Equity & Hybrid Funds: For these funds, ratings consider both three and five-year periods. A 60% weight is assigned to the five-year score and 40% to the three-year score, creating an aggregate score. Funds without a five-year history receive a 100% weight for their three-year score.
  • Debt Funds: For these steadier options, a shorter 18-month window allows for a sharper focus on recent fluctuations, reflecting their more dynamic nature.

2. The Score Dance:

  1. Separate Scores: Each fund gets a risk score (Standard Deviation) and a return score (Average Returns) calculated independently.
  2. The Grand Subtraction: Now, risk takes a step back, and its score gets subtracted from the return score. This tells us how much returns the fund made after taking the risk into account.
  3. The Star Appears: This final score, after the risk subtraction, is what determines the fund star rating. The higher the score, the higher the star Rating!

3. Beyond the Star: Nuances to Consider:

While the single star offers simplicity and long-term perspective, some investors might crave deeper insights. Here’s what Value Research doesn’t consider:

Unlike CRISIL, Value Research doesn’t delve into company and industry concentration or liquidity for equity funds. These factors can be important for investors seeking a more granular risk assessment.

Crisil Vs ValueResearch Ranking Comparision


While CRISIL uses more factors than Value Research, a 5-star rating doesn’t guarantee a fund will beat the market or offer stellar future returns. Remember, these ratings are based on past performance, and mutual funds aren’t like bank deposits promising consistent returns.

Studies show only around 40% of 5-star funds actually outperform the market in the long run. So, for beginners or those who prefer simple investing, index funds might be a wiser choice. They simply track the market, offering average but reliable returns.

If you want to invest in 5-star rated active mutual funds to outperform index, iNVESTT Model portfolios are designed to beat the index by combining different active & index funds strategically. This offers investors the potential for higher returns while still keeping costs low.

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