Should you worry if Crisil rank for a mutual fund scheme changes?

Should you worry if Crisil rank for a mutual fund scheme changesShould you worry if Crisil rank for a mutual fund scheme changes?

This article is based on a request from reader (Suman Deb) that if a Crisil rank for a mutual fund scheme changes, what does this mean for an investor and whether an investor need to worry about this?

What are Crisil Rankings for a mutual fund?

Crisil, an independent credit rating agency ranks equity, mutual funds and fixed income securities of various companies. We would limit our discussion here for mutual fund rankings. Crisil ranks mutual funds based on certain parameters. Hence it is important for us to know how the rankings would get changed, and as an investor whether we should worry about such change in rankings.

How Crisil ranks mutual funds?

Crisil ranks mutual funds based on various parameters.  It would rank different categories of mutual funds in different ways. For the purpose of Crisil ranking, mutual funds are categorized into 4 broad categories

1) Short term income fund, ultra short term debt fund and Liquid funds: Crisil ranks these mutual funds with Mean return%, Standard deviation, company/sector concentration, Debt quality and debt liquidity.

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2) Consistent performers in the last 5 years: Superior returns score and historical Crisil fund ratings would be considered by Crisil in ranking these mutual funds.

3) Index Funds: Crisil ranks these index mutual funds based on tracking error. Index funds track the underlying stocks of an Index. Any gap between the index funds performance Vs the underlying stocks of an index is termed as tracking error. The lower the tracking error, the higher the ranking would be.

4) All other equity mutual funds, ELSS and balanced mutual funds: Superior return score (SRS), company/sector concentration and liquidity is considered by Crisil to rank such mutual funds.  SRS weight age would be 75% while others carry 25% weight age.

What is the Superior return score (SRS)

Majority of the weight age is given to SRS to rank the equity, ELSS and balanced mutual funds. SRS is the relative measure of schemes returns and the risk (volatility) compared to its peer group. The basis would be considering 3 years (36 months) returns. The weight age is grouped into four quarters i.e. 9 months each. Each nine-month quartile has a progressive weighting starting from the latest period: 32.5%, 27.5%, 22.5% and 17.5%, respectively. This means, latest performance is given more weight age than the past performance.

In case of consistent mutual fund scheme performers (for equity, 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 weight age.

How does Crisil do final ranking based on these parameters?

Based on above weight ages, Crisil ranks from 1 to 5.

  • Crisil-1-Very Good performance in the category (1st to 10th percentile)
  • Crisil-2-Good performance in the category (11th to 30th percentile)
  • Crisil-3-Average performance in the category (31st to 70th percentile)
  • Crisil-4-Below average performance in the category (71st to 90th percentile)
  • Crisil-5-Relative weak performance in the category (91st to 100th percentile)

Also read: Best Short term investment options

Well, if Crisil rank for a mutual fund scheme changes, what should an investor do?

This is where most of the investors worry. Should we sell of our mutual fund holdings if Crisil Rank-1 mutual fund scheme changes to Rank-2?

Downgrade of rank: If there is any downgrade of Crisil rankings, it does not mean that mutual fund scheme has become bad or weak. It only indicates that it is performing lower than its peers hence the ranking is reduced by Crisil.

Should we sell mutual funds units where the rank is downgraded: The decision would depend upon the Crisil rank movement. E.g. For a mutual fund scheme the rank has moved from Rank-1 to Rank-2, there may not be a panic situation. E.g. HDFC Top-200 mutual fund ranked well in the past. Currently it has Rank-2 position, however it is consistent performer. However there are better funds than this in terms of returns in the last few years, hence, the ranking for this scheme is Rank-2.

However the situation can be different if Crisil Rank-2 mutual fund scheme has moved to Rank-3. Means it moved from good performance to average performance. The situation would not have arrived due to market crash or economy downtrend. If this is the case, all other mutual fund schemes also would have underperformed. This is where you need to take a decision either to switch or sell of the mutual funds at appropriate time.  Fresh investments should be strictly avoided even in case you want to do cost average by buying more units.

The other thought one of the reader (Due credit to Ravikumar Nama) gave is we can check mutual fund schemes research sites like or about the scheme before making a buy or sell decision instead of solely depending on the Crisil ranking changes. Thank you Ravi.

Conclusion thoughts: Crisil ranking methodology gives a good indication about a mutual fund. However the downgrading of ranking may not lead to panic situation and you need not sell the mutual fund units, unless the previous rankings were already low and it got downgraded still further.

Readers, I would invite your feedback on this article.

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Should you worry if Crisil rank for a mutual fund changed


  • dhirendra gehlot

    Pls.tell me,How is  hdfc top 200  fund (G).this fund is ranked 5 by crisil.should i continoues this funds.

    • Dhirendra, Yes even I have observed it. Crisil ranks the mutual funds once or twice in a year. This fund has generated more than 20% annualised returns in last 10 years. This stayed in Rank-2, Rank-3 for long term. However I feel, though this is one of the parameter to be considerd, it should not be the only criteria. Stay invested in such good funds.

      • Anjan

        Your article is confusing. On one hand it says that downgrading to Rank 3 is cause for concern and that we should freeze and fresh contributions but on the other hand you are advising this guy to stay invested in HDFC Top 200 which has been downgraded to the lowest rank by Crisil. Clearly this fund is not as good as it used to be. So what should common people like us do? Follow the Crisil rank or not?

        I am personally invested in Quantum Long Term Equity which not too long ago was ranked 1 by Crisil and was 5 stars at VRO. Now its downgraded to Rank 4 by Crisil and 3 stars by VRO. This is very confusing. How can such a good fund lose its positions so quickly?

  • Suman Deb

    Thanks a lot Suresh…….it is really helpful…thanks for considering my topic…:)

  • Ravikumar N

    Dear Suresh,

    Some good sites are available who will provide the performance of a fund. For eg.,, etc. My opinion is we need to get updates of a fund performance from these sites as well (along with Crisil rating) before deciding to sell / purchase of a fund,


    Ravi N

    • Thanks Ravi. I agree to your point to some extent. Let us take an example about valueresearchonline. The website offers good analysis, but they change the star ratings of the fund very frequently. My friend invested in a a mutual fund which was rated as 5 star fund, but it got changed to 4 star within a short time. I agree that before making a sell decision, we can enquire couple of sites like this. Thanks for your valuable feedback. I would include this as a line item in the article itself so that it would get benefitted to others.

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