Of the total 863 open-ended equity scheme options, only 14% or 113 scheme options are worth investing, says Rank MF, the MF research arm of Samco Securities.
The research website recommends only 5 star and 4 star rating funds to investors. Of the total 863 open-ended equity scheme options that exist today, only 2% or 13 schemes deserve a 5-star rating and 12% or 100 of them are 4-star fund, says the MF research company.
From the remaining 850 schemes, 137 are 3-star funds, 354 are 2-star funds and 259 are 1-star funds.
A 5-star rating stands for ‘great fund’, 4-star rating suggests ‘good fund’, 3-star implies ‘average-so-so’ quality funds, 2-star shows ‘poor’ quality funds and 1-star rating means you should ‘just avoid’ investing in the fund.
For equity schemes, the rating is based on parameters such as performance, expense ratio, quality of portfolio, health of scheme based risk-reward parameters and the underlying holdings.
Rank MF also evaluated debt funds based on their portfolio credit risk.
Overall, the research firm has evaluated 2,805 open-ended MF schemes across asset classes. It has taken into account growth, dividend and dividend reinvestment variants of the same scheme.
Of the 2,805 schemes, the research platform found that only 12% or 332 schemes meet the parameters to be rated as 5-star funds. From the rest, 490 schemes hold a 4-star rating, 604 are 3-star, 778 are 2-star and 601 are 1-star.
“Most of the schemes we have rated are below the 5 star category, which speaks a lot about the quality of funds in the industry right now. The foremost reason is the poor investment strategy of these schemes which involves frequent churning of the portfolio,” said Omkeshwar Singh, Head of Rank MF.
