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CRISIL ~ Composite Performance Rankings (CRISIL~CPR) Methodology

CRISIL Mutual Fund Ranking Methodology

Methodology

CRISIL Mutual Fund Ranking is the relative ranking of mutual fund schemes within a peer group. The basic criteria for inclusion in the ranking universe are three-year NAV history (one-year for liquid, ultra short-term debt, short term income and index funds, and five years for consistent performers), assets under management in excess of cut-off limits and complete portfolio disclosure. Only open ended schemes are considered. Ranking is based on the following parameters:

Superior Return Score (SRS)

The superior return score (SRS) is the relative measure of the schemes' returns and risks (volatility) compared to their peer group. It is computed long term income, balanced, monthly income plan (aggressive & conservative) and long term gilt categories. The three-year period of evaluation is divided into four periods of nine month each. Each nine-month quartile has a progressive weighting starting from the latest period: 32.5%, 27.5%, 22.5% and 17.5%, respectively. In case of consistent performers (for balanced and debt categories), the SRS is calculated for a period of five years, with each one-year period being weighted progressively with the most recent period having the highest weightage.

Mean Return and Volatility

Mean return and volatility are considered as separate parameters in case of equity funds (large cap, small & mid-cap, equity diversified, equity linked savings schemes (ELSS) and thematic infrastructure), consistent performers - equity, liquid, ultra short-term debt and short term income funds while these are combined under SRS for the rest of the categories. Mean return is the average of daily returns based on the scheme's NAV for the period under analysis and the volatility is the standard deviation of these returns. While the period for analysis is three years for equity funds, it is one year for short term liquid, ultra short-term debt and short term income funds. This period of analysis is broken into four quartiles and each period is assigned a progressive weight starting from the latest period as follows: 32.5%, 27.5%, 22.5% and 17.5%, respectively. In case of consistent performers - equity, mean return and volatility is calculated for a period of five years, with each one-year period being weighted progressively with the most recent period having the highest weightage.

Downside Risk Probability (DRP)

DRP measures the probability of the investment earning lower returns compared to short tenor risk free securities. It is measured by assessing the number of times a scheme's return falls below the risk free return during the period of analysis. The risk free return is taken as 91-day T-Bill auction yield revised on a weekly basis. DRP is considered for liquid and ultra-short term debt categories. Progressive weights are applied for each quarterly period.

For liquid, ultra short-term debt and short term income funds, mean return, volatility and DRP are measured using asset weighted returns of a scheme across plans until September 30, 2012. The performance of the surviving plan is considered for all periods of performance analysis post this period.

Portfolio Concentration Analysis

Concentration measures the risk arising out of improper diversification. For equity securities, diversity score is used as the parameter to measure industry concentration and company concentration. In case of debt schemes, the industry concentration is analysed for any exposure to sensitive sectors which are arrived at based on CRISIL's assessment of the prospects for various sectors, and the company concentration is analysed at an individual issuer specific limit of 10%.

Liquidity Analysis

It measures the ease with which a portfolio can be liquidated. The lower the score, the better it is. In case of equities, it measures the number of days to liquidate the portfolio. Liquidity is calculated by taking the average portfolio liquidity score of the past three months.

Equity liquidity is computed as follows:

Liquidity score of each stock = No. of shares held / Daily average trading volume of past six months

Portfolio liquidity score = Weighted average liquidity score of the above

Gilt liquidity is measured by analysing the market turnover, days traded and size of trade in any security for a three-month period for that security. Corporate debt liquidity is computed by classifying each security into three categories - liquid, semi liquid and illiquid - and then evaluating a scheme's exposure to each category.

Asset Quality

Asset quality measures the probability of default by the issuer of a debt security to honour the debt obligation in time.

Modified Duration /Average Maturity

Modified duration /Average maturity is considered across all debt categories except liquid to capture the interest rate risk of the portfolio. The lower the value, the better it is.

Asset Size

It is considered only for ultra short-term debt and liquid categories to take into account the effect of large fund flows on the schemes' performance and ability of the schemes to manage such flows optimally. The higher the asset size, the better it is.

Tracking Error

This is used only for index schemes. The tracking error is an estimation of the variability in a scheme's performance vis-a-vis the index that it tracks. The lower the tracking error, the better it is.

Historic CRISIL Mutual Fund Ranking Performance

Historic CRISIL Mutual Fund Ranking performance is considered only for the consistent category. Quarterly mutual fund rankings during the five year period of analysis are broken into five blocks of one year each. Each block is differentially weighted with the most recent period having the highest weightage.

CRISIL Mutual Fund Ranking Category Definitions

Category Interpretation
CRISIL Fund Rank 1 Very Good performance in the category (Top 10 percentile of the universe)*
CRISIL Fund Rank 2 Good performance in the category
CRISIL Fund Rank 3 Average performance in the category
CRISIL Fund Rank 4 Below average performance in the category
CRISIL Fund Rank 5 Relatively Weak performance in the category

* If the top 10 percentile figure is not an integer, the same is rounded off to the nearest integer. The same approach is adopted for CRISIL Fund Rank 2 (11th to 30th percentile), CRISIL Fund Rank 5 (last 91st to 100th percentile) and CRISIL Fund Rank 4 (71st to 90th percentile) clusters. The residual funds in the universe are placed in the CRISIL Fund Rank 3 cluster.

Eligibility Criteria

Only open-ended funds are considered
NAV History
- Three years for equity, hybrid and long term debt schemes
- One year for liquid, ultra short-term debt, short term income and index funds
- Five years for consistent performers
Complete portfolio disclosure for all three months in the last quarter
Minimum five schemes in each category
Minimum AUM cut-off size as per latest quarter's average AUM
Categories Minimum corpus (Rs million)
Large Cap Oriented Equity Funds 1000
Diversified Equity Funds 1000
Small & Midcap Equity Funds 1000
Thematic Infrastructure Funds 1000
Equity Linked Savings Scheme 1000
Index Funds 250
Balanced Funds 500
MIP Aggressive 500
MIP Conservative 500
Long Term Gilt Funds 500
Long Term Income Funds 500
Short Term Income Funds 500
Ultra Short-term Debt Funds 5000
Liquid Funds 5000
In case of long term gilt funds, only those funds that have an exposure in excess of 98% over the past three years to the following would be considered for ranking:
- Central and state government securities
- Cash and cash equivalents such as collateralised borrowing and lending obligations (CBLOs), reverse repo, net receivables, etc.

Parametric Weights

Category Largecap,
Small & Mid-cap,
Equity
Diversified & Thematic
Infrastructure
ELSS Index Balanced Monthly Income Plan -
Aggressive
&
Conservative
Long term Income Long term Gilt Short term Income Ultra Short term Debt Liquid Consistent Performers - Equity Consistent Performers - Balanced & Debt
Superior Return Score (%) - - - 75 60 60 75 - - - - 50
Mean Return (%) 50 50 - - - - - 42.5 37.5 42.5 35 -
Volatility (%) 25 30 - - - - - 15 20 20 15 -
DRP (%) - - - - - - - - 5 5 - -
Tracking Error (%) - - 100 - - - - - - - - -
Company Concentration (%) 5 5 - 5 5 5 - 5 5 5 - -
Sectoral Concentration (%) 10 10 - 10 5 5 - 5 - - - -
Equity - Liquidity (%) 10 5 - 10*K 7.5%*K - - - - - - -
Debt - Asset Quality (%) - - - 5*(100-K) 17.5 17.5 - 15 10 10 - -
Debt/Gilt - Liquidity (%) - - - 5*(100-K) 7.5%*(100-K) 7.5 15 10 10 12.5 - -
Modified Duration (%) - - - - 5 5 10 7.5 7.5 - - -
Asset Size (%) - - - - - - - - 5 5 - -
CRISIL Mutual Fund Ranking (%) - - - - - - - - - - 50 50
Time Period 3 years 3 years 1 year 3 years 3 years 3 years 3 years 1 year 1 year 1 year 5 years 5 years
Minimum Corpus (Rs Million) 1000 1000 250 500 500 500 500 500 5000 5000 - -

K = Equity component in hybrid schemes

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