Morningstar India has rolled out Analyst Ratings for mutual funds in the fixed-income segment. The qualitative, forward-looking ratings come a year after we launched our ratings for equity funds, and we hope it would helpful for investors and advisors who can use .
Unlike our traditional star rating, which is a backward-looking, quantitative indicator of a fund’s historical risk-adjusted performance versus peers, the Analyst Rating is our view on the fund’s potential in the future.
Like with the Analyst Rating for equity funds, the bond fund rating would also be based upon our analysts’ examination of the five pillars that we believe are crucial to a fund’s performance: people, parent, process, performance and price. The ratings scale is also the same: Gold, Silver and Bronze on the positive side, apart from Neutral and Negative.
The Gold, Silver and Bronze ratings (with varying conviction in our belief on the basis of strength the fund has across the five pillars) imply that the fund is likely to outperform peers over the long run. The Neutral rating means we believe that the fund does not differentiate itself enough across the five Ps to be able to outperform its category while a Negative rating means the fund has inherent flaws that could hinder its ability to even keep up with its peers’ performances in the future.
Each Analyst Rating that is issued on a fund is complemented with a detailed write-up that explains what drove the rating. Users should click on the Analyst Research tab for each fund to read our opinion. Registered Morningstar users can also download the complete four-page PDF report that also details out our comprehensive view on the five pillars, along with other useful information.
“In India, fund investors often rely solely upon on past performance while taking investment decisions for mutual funds,” said Vicky Mehta, Senior Research Analyst, Morningstar India. “For our analyst ratings, performance is only one of the five Ps that we look at.”
The same caveats applied as for Analyst Ratings for bond funds as they did for equity funds: the ratings are our long-term view over a fund’s performance versus its category over, say, a complete market cycle (about five years, if we have to put a number to it) and should not be taken as a short-term recommendation.
Second, asset allocation is still the first step towards making a fund investment decision--a Gold-rated fund should be considered for investment only it it makes a good fit in your portfolio. Towards that, an investor should first decide on the kind of funds he/she needs for their portfolio and then look to our view on funds within that category in the form of Analyst Ratings.
Thus, a Gold long-duration bond fund may still not be a good idea for an investor who does not want to take on high interest-rate risk or a Silver mid-cap equity fund may not be ideal for an investor with a short investment horizon or very low risk appetite.
For more information on how to use our Analyst Ratings for mutual funds, click here. Also read: FAQ: Morningstar Analyst Ratings for Funds.
For the complete list of funds under analyst coverage, click here.