Understanding the Significance of CRISIL Rating

CRISIL (Credit Rating Information Services of India Limited) is among the most popular analytics companies. They provide credit ratings for organisations, research services, financial advisory, and more. CRISIL ratings are used by many investors to make informed financial decisions. Let us understand what CRISIL rating is in detail.

What is CRISIL Rating?

CRISIL is a popular credit rating agency in India, which was incorporated in 1987. It is known for offering credit ratings, research services, risk reports, and other facilities. The ratings business of CRISIL is managed by CRISIL Ratings Limited, which is a subsidiary. CRISIL offers ratings to different organisations based on their cash flow, debt, pending payments, and other factors. CRISIL has recently rated more than 25,400 large/mid-scale corporates and 1,10,000 MSMEs in India. The ratings for organisations can range between AAA+ (high creditworthiness) and D (likely to default).

CRISIL ratings also span across different debt/financial instruments. For instance, CRISIL mutual fund ratings are used by investors to make better decisions. CRISIL is a subsidiary of S&P Global, which is among the best market intelligence and credit ratings providers in the world. CRISIL ratings are authentic and up-to-date, thus helping investors and organisations make informed decisions.

How Do Ratings Help in Making Investment Decisions?

CRISIL ratings are used by organisations, HNIs, institutional investors, and individuals to make investment decisions. The CRISIL rating of an organisation will reflect its financial health. An organisation with large pending debts might not have a healthy CRISIL rating. An organisation with a poor CRISIL rating might find it challenging to sell its financial instruments. For instance, investors might refrain from buying stocks of a public company with a poor CRISIL rating.

CRISIL ratings aren’t only limited to the financial performance of organisations. CRISIL also rates collective investment schemes, like mutual funds. Similarly, CRISIL also rates bonds, debentures, and some debt securities. Investors can check the CRISIL rating of a financial instrument and its issuer before making a decision. CRISIL helps investors choose financial instruments with high chances of offering good returns. CRISIL credit ratings work as a benchmark for investors to make financial decisions.

Understand CRISIL Mutual Fund Rankings

CRISIL is also involved in rating mutual funds. The mutual fund rating system of CRISIL allows investors to choose high-performing schemes. Since CRISIL considers both hard and soft factors to rank mutual funds, its reports are highly effective. Let us understand a few things about CRISIL mutual fund rankings:

What Types of Mutual Funds Are Ranked?

CRISIL ranks three types of mutual funds : equity, hybrid, and debt funds. Under each category, there are several sub-categories. For instance, you can check the rankings of different types of funds under the equity category. Here are the types of equity funds ranked/rated by CRISIL:

  • Large Cap funds

  • Large & Mid Cap funds

  • Flexi Cap Funds

  • Multi Cap Funds

  • Mid Cap Funds

  • Small Cap Funds

  • Value or Contra Funds

  • Focused Funds

  • ELSS ( Equity Linked Savings Schemes )

  • Index Funds

Here are the types of debt funds ranked or rated by CRISIL:

  • Gift Funds

  • Banking & PSU Funds

  • Credit Risk Funds

  • Corporate Bond Funds

  • Medium to Long Duration Funds

  • Medium Duration Funds

  • Short Duration Funds

  • Low Duration Funds

  • Ultra Short Duration Funds

  • Dynamic Bond Funds

  • Money Market Funds

  • Liquid Funds

Note: In the hybrid funds category, you will find aggressive, conservative, and arbitrage hybrid funds.

What Are the Rankings Categories?

CRISIL ranked mutual funds across five different categories. The categories are:

  • CRISIL Fund Rank 1

  • CRISIL Fund Rank 2

  • CRISIL Fund Rank 3

  • CRISIL Fund Rank 4

  • CRISIL Fund Rank 5

Mutual funds in the CRISIL Fund Rank 1 category show very good performance. Mutual funds in CRISIL Fund Rank 2 and 3 have good and average performances, respectively. Mutual funds with Rank 4 and 5 have below-average and relatively weak performances, respectively. Investors can view the CRISIL rank to get an idea of the fund’s performance.

Recommended Read: Best Mutual Funds For Investment

CRISIL gives a percentile figure to each mutual fund scheme. When the percentile figure contains decimal places, it is rounded off to the nearest integer. Funds with the top ten percentile are placed in the CRISIL Fund Rank 1. CRISIL Fund Rank 2 contains funds with the 11th to 30th percentile in the list. Funds with 71st to 90th percentile are placed in CRISIL Fund Rank 4. Similarly, CRISIL Fund Rank 5 contains funds with the fewest percentile scores (91st to 100th percentile). The remaining funds are placed in the CRISIL Fund Rank 3 category. You can find quarterly reports from CRISIL with different funds ranked based on their percentile score.

How CRISIL Ranked Mutual Fund Schemes?

As discussed above, CRISIL mutual fund ratings consider several hard and soft factors. These factors are qualitative or quantitative. CRISIL research teams use their expertise to rank mutual fund schemes based on different factors. Each factor has a weightage in the total percentile score. For instance, the mean return of a mutual fund contributes to 55% of the percentile score. On the other hand, liquidity contributes only 5% to the total percentile score of the fund.

CRISIL gives the highest importance to the mean return of the fund to create its percentile score. Mean returns of both direct and regular plans of the mutual fund scheme are considered. Volatility of the fund is also considered, which refers to the fluctuations in the fund’s returns. Liquidity (ease of redeeming units) is another factor considered by CRISIL to rank mutual fund schemes. Industry and company concentration are also essential in determining the percentile score of a mutual fund scheme. Industry concentration determines the extent to which the mutual fund portfolio is focused on a particular industry or sector. On the other hand, company concentration determines the extent to which a fund’s portfolio is focused on a company or a group of entities.

CRISIL does not rank every mutual fund scheme. It considers the one-to-three-year Net Asset Value (NAV) of the mutual fund before including it in rankings. Assets Under Management (AUM) cut-off limits are imposed to rank only qualified funds. Also, CRISIL does not rank funds that do not disclose their portfolios at regular intervals.

Conclusion

CRISIL ratings have helped many individuals make better mutual fund investment decisions. Besides investors, AMCs (Asset Management Companies) also depend on CRISIL to evaluate the performance of their mutual fund schemes. You can visit the online portal of CRISIL and check the real-time rankings of different mutual fund schemes. Find the best-ranked mutual fund schemes now!



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