WHAT IS CRISIL RATING?

WHAT IS CRISIL?

CRISIL is a global credit rating agency for financial instruments and institutions. It stands for Credit Rating Information Services of India Limited and offers multiple financial services. This rating signifies how likely a particular mutual fund is going to deliver gains on time and within the scheme framework. They enjoy great goodwill and acknowledgment among intermediaries, investors, and AMCs for mutual funds ratings and analysis. 

Basic Information

SIGNIFICANCE OF CRISIL RATING FOR MUTUAL FUNDS

CRISIL Rating allows investors to compare, analyze and evaluate the best performing mutual funds in the market at a given time. The agency evaluates and analyses mutual funds on 2 parameters that include quantitative and qualitative aspects. These ratings are not just simply use to investors, it is also beneficial for AMC and intermediaries that allow them to offer the best plans to potential investors. The SEBI regulates CRISIL along with all the rating agencies. The rating done by the CRISIL is based on global practices. Below are the 3 basic criteria and aspects for rating:

1. Complete portfolio Disclosure
2. AUM
3. 3/1 year NAV

MUTUAL FUND ELIGIBILITY CRITERIA FOR RATING

1. Only open-ended mutual funds are given the ratings
2. Portfolio disclosure for 3 years in the last quarter
3. NAV includes 3 and 1-year mutual funds - 3 years in case of medium to long, dynamic, equity, gilt, hybrid, and medium duration funds. 1 year NAC for corporate funds, arbitrage, funds of banking, short-duration funds or PSU sector, and credit risk funds.
4. Equity with AUM cut-offs of Rs, 10 Crs, Hybrid and Debt with AUM cut-off of Rs. 50 Cr and Debt funds (of no more than 1-year maturity including ultra short term, money market, and liquid funds) should have cut off AUM of Rs. 250 Crs.

SIGNIFICANCE OF CRISIL RATING TO INVESTORS

CRISIL rating is highly dependable if investors seek a thorough and elaborative rating practice because they check every variable and aspect possible, and this is why any AMCs use CRISIL ratings to market themselves and show their USP. Nevertheless, their rating will not point towards a scheme with more return potential. Ratings alone can not be solely considered as a performance indicator, and that’s because of the volatile markets. 

Hence, it is always ideal to look at other assessment metrics too. If investors find the entire process cumbersome, you can contact and consult our financial experts at ZFunds. In crux, CRISIL’s goodwill and reputation for unbiased ratings and benchmarks made it a globally recognized and premier rating agency. No wonder many first-timers, as well as seasoned investors, choose to check the ratings and ranks before selecting a mutual fund. 

PARAMETERS OF CRISIL RATING 

1. Liquidity Analysis:

Using this, the agency measures the liquidity level of the fund. CRISIL takes into consideration the liquidity of the portfolio for the last 3 months. 

2. Active Returns:

This parameter is incorporated for equity fund categories that include large-cap, mid-cap, multip-cap, large and mid-cap, and value/contra and focused funds. These are percentages of profits or losses made by an investment portfolio as a result of active investment decisions made by the managers.

3. Portfolio Concentration Analysis:

This involves the risks faced due to over or improper diversification. For debt funds, the concentration is evaluated at the individual level, while the diversification score analyses the company and industry concentration.

4. Tracking error:

This measures the variations of a plan’s performance by comparing it with the index that it traces. CRISIL uses this aspect for index-related plans. A low tracking error indicates a better-performing plan.

5. Count of negative returns:

This parameter is majorly used for arbitrage mutual funds, where the agency evaluates and measures the downside risks of the funds. 

6. Mean return and volatility:

CRISIL uses mean returns to determine the daily average returns of the NAV, while volatility helps to ascertain the deviation of the returns. As mentioned in the eligibility criteria, the period of the evaluation and analysis is 3 years for debt, equity, and hybrid funds. And it is 1 year for credit risk, corporate bonds, PSUs, and other short-duration categories.  

FAQs

1. Does CRISIL Rating ensure a repayment guarantee?

No. The ratings do not provide assurance for repayments.

2. What is CRISIL?

CRISIL is a global credit rating agency for financial instruments and institutions. It stands for Credit Rating Information Services of India Limited and offers multiple financial services.

3. Who regulated CRISIL?

CRISIL, along with other credit rating agencies is regulated by SEBI.

4. Is credit rating useful to invest in debt mutual funds?

Credit rating is one of the most significant inputs to make a financial decision for investment but it is not the only factor recommended to trade or hold debt funds.