CRISIL ~ Composite Performance Rankings (CRISIL~CPR) Methodology

Transcription

1 CRISIL ~ Composite Performance Rankings (CRISIL~CPR) Methodology Methodology CRISIL Composite Performance Ranking (CRISIL~CPR) is the relative performance ranking of the mutual fund schemes within a category for the peer group. Schemes in the ranking categories which satisfy the following criteria are included in the ranking: 1. At least two years NAV History (One year for Liquid/Liquid Institutional/Liquid Super Institutional/Income ST/ Index & Floating Rate Funds) 2. Full Portfolio Disclosure for all three-months in last quarter. 3. Minimum 5 schemes in each category 4. Assets under management as on ranking date, in excess of the cut off limits as under: Large Cap Oriented Equity Funds Rs 50 Crores Diversified Equity Funds Rs 50 Crores ELSS Rs 25 Crores Income Funds Rs 25 Crores Income Short Rs 25 Crores Balance Funds Rs 15 Crores Liquid Funds Rs 50 Crores Liquid Funds- Institutional Rs 100 Crores Liquid Funds- Super Institutional Rs 150 Crores Gilt Funds-Long Rs 25 Crores MIP Aggressive Rs 25 Crores MIP Conservative Rs 25 Crores Floating Rate Funds Rs 100 Crores Sectoral - IT Rs 25 Crores Index Funds Rs 10 Crores The performance of the schemes is measured on the following criteria, depending upon the category to which they belong. Return & Risk Analysis 1

2 Superior Return Score (for Large Cap Oriented Equity, Diversified Equity, ELSS, Sectoral-IT, Balanced, Debt, MIP (Aggressive & Conservative), Gilt-Long) Mean Return & Volatility (for Debt-Short, Floating Rate Funds, Liquid, Liquid Institutional & Liquid Super Institutional ) Tracking Error (for Index Funds) Portfolio Concentration Liquidity Asset Quality (Debt Categories) Average Maturity (Debt Categories) Downside Risk Probability (DRP for Debt-Short, Floating Rate Funds, Liquid, Liquid Institutional & Liquid Super Institutional categories) Asset Size (Debt-Short, Floating Rate Funds, Liquid, Liquid Institutional & Liquid Super Institutional categories) 1.1 Return and Risk Analysis Superior Return Score The Superior Return Score (SRS) gives the relative measure of the return and the risk for the schemes within the peer group. For computation of SRS, daily return of the scheme within the peer group is calculated for all the days covered for analysis. The daily average of this return is the peer average return for the schemes. In the next step, the difference between daily peer average and the scheme daily return is calculated. This is the differential return series for the scheme. The average return divided by the standard deviation of the differential return is the Superior Return Score. For Large Cap Oriented Equity, Diversified Equity, ELSS, Sectoral-IT, Balanced, Debt, MIP (Aggressive & Conservative) and Gilt-Long schemes, the SRS is computed for two years on the daily NAV. The two-year period of analysis is broken down into quartile of six months each. The SRS score for the earliest six month period is given weightage of 17.5%, the second 22.5%, the third 27.5% and the latest 32.5% respectively. The SRS for all the schemes within the category are scaled to the best score. The top performer gets a score of 1 and others get performance scores in relation to the category top performer. The scheme with the highest score is ranked one, while others are ranked in the descending order. 2

3 Mean Return & Volatility For Debt-Short, Floating Rate Funds, Liquid, Liquid Institutional & Liquid Super Institutional categories, mean return for each scheme and volatility is taken rather than superior return score. Mean return is calculated by taking average of daily returns for the last one year period. Standard deviation of this daily return series is taken as a measure of volatility. The period of analysis has been broken down into quartile of three months each. The earliest three month period is given a weightage of 17.5%, the second 22.5%, the third 27.5% and the latest 32.5% respectively Tracking Error Tracking Error is a measure of divergence between the scheme and the benchmark's Total Return Index (TRI) The first step in ranking Index Schemes involves calculation of the daily return for the scheme and the benchmark TRI of the scheme. The daily differential return series for the benchmark TRI and the scheme is then calculated. Standard deviation of the daily differential return series is called tracking error. The lower the tracking error, the closer is the performance of the scheme to its benchmark. The lower the tracking error of the scheme, the better is the ranking assigned. The tracking error has 100% weightage while ranking Index Schemes in CRISIL~CPR. 1.2 Downside Risk Probability (DRP) DRP measures the probability of capital destruction. It is measured by counting the number of times fund s return falls below the risk free return over the period of analysis. Risk free return is the 91-day T-Bill yield over the period. DRP is used as a parameter in case of Debt-Short term, Floating Rate Funds, Liquid, Liquid Institutional & Liquid Super Institutional Funds. 1.3 Concentration Analysis Concentration is measure of the relative proportions of different securities in a portfolio. Concentration is included as a separate criterion because the Indian financial markets are still evolving and is yet to attain depth, maturity and have 3

4 an empirical base of market cycles. The industry and company concentration scores of the scheme are measured separately. This parameter is applied in all categories except Gilt Funds. Industry Concentration The Industry Concentration measures the exposure of mutual fund schemes (in Large Cap Oriented Equity, Diversified Equity, ELSS, Balance, Income, Income- Short & MIP(Aggressive & Conservative) categories only) in various industries over and above the industry distribution pattern in the S&P CNX Nifty Equity Index, developed jointly by CRISIL and Standard & Poor s, USA. The construction of the S&P CNX Nifty index addresses the issues like market representation along with impact cost. For Industry concentration measurement of equity funds, the companies have been classified as per the Economic Sector classification. In case of equity funds NIFTY will be used as a benchmark. Schemes will be penalised for over exposure. For Income Funds all the portfolios will be classified into 6 broad categories and limits have been specified as follows. Gilt 50% Manufacturing 40% NBFC 15% Banks, FIs, HFCs 40% Total Securitisation 20% Cash/ Call& Net Receivables 10% In case of Income-Short Funds the limits are as follows Manufacturing 50% NBFC 30% Banks, FIs, HFCs 50% Total Securitisation 20% Call and Other money market instruments 20% Company Concentration 4

5 Company Concentration in case of equity securities is measured by means of Diversity Score. The calculation of Diversity score is shown in the table below: Scheme Portfolio % of NAV A1 P1 P1*P1 A2 P2 P2*P2 A3 P3 P3*P3 A4 P4 P4*P4 A5 P5 P5*P5 Sum of Squares (P1*P1+P2*P2+P3*P3+P4*P4+P5*P5) Square root of Sum of Squares (P1*P1+P2*P2+P3*P3+P4*P4+P5*P5)^0.5 Diversity Scores = Square root of Sum of Squares For debt papers in Balance, MIP (Aggressive & Conservative), Debt, Liquid, Liquid Institutional, Liquid Super Institutional and Floating Rate Fund categories, securities belonging to companies in the Manufacturing, Banks, FIs, HFCs, Fixed Deposits and Securitized paper sectors will have an individual issuer specific limit of 7.5%. These limits have been fixed based on industry feedback. This has been done to capture the additional risk being taken by investing higher proportions in an individual company s debt paper. Cash and Call The other key parameter of actively managed mutual fund behavior that affects unit holders is cash reserves as it involves an opportunity cost. Exposure above 15% will be penalized in case of equity and hybrid funds. In case of Income schemes the call limit is 10%, with the exception of the Income-Short category where it is 20%. Gilt and Liquid funds have been exempted from this criterion. 1.4 Liquidity Analysis Large Cap Oriented Equity, Diversified Equity, Sectoral- IT, ELSS, Balance & MIP (Aggressive & Conservative) Funds Liquidity measures the ease with which an investor can convert an investment to cash without negatively impacting either capital or return. It is measured by 5

6 dividing the holding in the portfolio in terms of units by the average turnover for the security during the preceding six months. Gilt Funds- Liquidity Liquidity in case of Gilt Funds will be based on 3 parameters with the following final weightage Turnover 7.5% No of days traded 5.0% No of trades 2.5% In all the three parameters adjustment will be made for securities which were issued recently. Debt Liquidity Debt liquidity is computed for debt funds and debt component of hybrid funds. The Liquidity of Gilt and corporate debt parts are calculated separately. Total liquidity is computed by combining the gilt and corporate liquidity score using the gilt-corporate debt adjustment factor. 1.5 Asset Quality Debt, Debt-Short, MIP (Aggressive & Conservative), Liquid, Liquid Institutional & Liquid Super Institutional, Floaters and Balance Funds: In the case of debt portfolios, Asset quality is a factor of default / migration statistics arising out of credit risk history maintained by CRISIL. So here asset quality of a scheme based on asset mix will be calculated as under: 6

7 Category (a) % Portfolio (b) Default rates G Secs X % AAA X % AA+ X % AA X % AA- X % A+ X % A X % A- X % BBB+ X % BBB X % BBB- X % BB & Below X % P1+ X % P1 X % P2+ X % P2 X % P3+ X % P3 X % Total Asset Quality Score Weighted Score (d = b*c) Where X % are the default / migration statistics from CRISIL historical behavioral data on various classes of debt papers. For Non-CRISIL rated and unrated papers CRISIL s ratings view is taken. Total asset quality score is obtained by summing up all the category scores. 1.6 Asset Size It refers to the net investible funds of the mutual fund schemes. A higher asset size indicates a better ability of the AMC to meet large inflows/outflows from the scheme without impacting the existing investors. Hence larger the asset size, better the rank. This parameter is considered only for Debt-Short, Floating Rate Funds, Liquid, Liquid Institutional & Liquid Super Institutional categories. 7