Seeing instant returns of a fund may not be a good way to judge it. There are many other factors which should be known before investing. A fund may perform well for one year and may fall in the long run.
If you invest in mutual funds, then you must know about its rating. People invest money in any mutual fund only after seeing the rating. It is believed that the better the rating, the higher is the expected return on the fund. The rating of mutual funds is called star rating. Rating is done by agencies monitoring mutual funds. Then on the basis of the same star rating, people decide to buy or not to buy mutual funds. With star rating, the investor understands how it is, whether it is a 5 star rating fund or just going to work. Hence rating can play an important role before buying any mutual fund.
There are some factors behind the rating of mutual funds. The first is that on the basis of how that fund has performed, it is given a rating of 2,3,4 or 5. The second premise is that of risk. In this, it is seen that how much risk or risk is there in taking funds. The third premise sees the ability of the fund as to how far it is capable of giving returns to the investors. If a fund has got 5 stars, then it can be considered good for investment. Therefore, it is advisable to check the ratings before taking a mutual fund.
Research Ratings
If the rating is low, then do a research on it and find out how the fund is doing. If it is not profitable from investment point of view then it is advisable not to buy the fund. There are many agencies in the market that do rating of mutual funds. Through these agencies, mutual funds can be easily understood. It is important to know here that looking at the instant returns of a fund may not be a good way to judge it. There are many other factors which should be known before investing. A fund may perform well for one year and may fall in the long run. So before investing you should check the performance of the fund for three years and the performance of the fund for five years to get an understanding of its performance.
Performance alone doesn’t work
It is also seen that the performance of a fund has been very good, but its rating is low. In such a situation, it should be known that there must be some reason for this. There can be no difference between performance and rating without reason. Only after knowing that reason should buy that fund. It should not happen that the rating of a fund is 5 but if the performance is not good then it should be bought in a hurry. One cannot invest hard earned money in the fund just by looking at the ratings.
Need to see the future
Serious research should be done even before taking such funds. A fund may not have performed well in the past, has a rating of 5, so it should be seen how likely it is to give returns in the future. If that fund has the potential to give higher returns in future than in the past, then you can invest money in it. A fund may fall for a year or two or have declining returns, but with better performance in the coming year or two, may also increase the average return significantly. In such a situation, there is a need to see what is its performance in the long run and what can be the future.
Which fund has good rating
CRISIL acts as a rating agency for mutual funds. Under this, a fund is given a rating of 1 to 5. If a fund has got 1 ranking (not rating) then it means ‘very good performance’. Similarly, ICRA, Morning Star, Value Research also do rating work. The ratings of these agencies are considered reliable. Several parameters of mutual fund schemes are seen in the rating. In this, performance is seen on the basis of both quality and quantity.
Top Rated Mutual Funds include Quant Tax Plan Direct Growth, Quant Infrastructure Fund Direct Growth, Quant Active Fund Direct Growth, Axis Small Cap Fund Direct Growth, PGIM India Midcap Opportunities Fund Direct Growth, Kotak Small Cap Fund Direct Growth, Quant Absolute Fund Direct Growth , PGIM India Flex Cap Fund Direct Growth etc.
