Deciphering rating symbols gets easier

The Securities and Exchange Board of India (Sebi) has brought uniformity in the manner credit rating agencies rate mutual fund schemes, along with debt and other finance instruments. The move is expected to help investors decipher the rating symbols in a much easier manner, so as to take better informed investment decisions.

“It has been felt there is a need to have common rating symbols and definitions (i) for easy understanding of the rating symbols and their meanings by the investors, and (ii) to achieve high standards of integrity and fairness in ratings,” said a Sebi circular issued today.

According to the regulator, the issue was discussed in the Corporate Bonds and Securitisation Advisory Committee meeting and also with the credit rating agencies (CRAs). The regulator, after factoring in international practices, has now standardised the symbols and their definitions for both long-term and short-term debt and structured finance instruments along with mutual fund schemes.

For instance, long-term debt mutual fund schemes, considered to have the highest degree of safety regarding timely receipt of payments, would be rated “AAAmfs”. Schemes with a very high degree of risk would be rated “Cmfs”.

This will be a welcome change from the current practice whereby CRAs like Crisil, Icra and CARE rate mutual fund schemes in a manner devised in-house. Crisil rates MF schemes on a scale of 1 to 5, with 1 considered to be the best. Icra uses the grades AAA, AA, BBB and C, among others, to rate the same schemes.

The CRAs have been directed to communicate to Sebi the status of the implementation of the new norms by October 31. They also need to place the compliance status before their respective boards.