Icra Kicks Off Mutual Fund Gradings

The Investment Information and Credit Rating Agency (Icra) has kicked off grading of mutual funds.

PNB Debt Fund (PNBDF) was the first to be graded by the rating agency. The fund has received the highest risk grading 'mfAAA' and a performance grading of 'mf3+'.

There are 14 notches in the risk gratings with mfAAA as the highest and mfB as the lowest in the rank. In the performance gradings, there are 11 notches with mf1 as the highest and mf5 the lowest in the rank.

The risk gradings are similar to the ratings of fixed income instruments -- corporate bonds and commercial papers. The performance gradings depends upon a composite measure of risk adjusted returns and sensitivity to other associated risks. Both the gradings take into account among other things consider the relative quality of the funds and the performance relative to the changes in the market condition.

 

PNBDF has a huge exposure to the government security to the government securities, which the rating agency considered as the emanating from the fund's emphasis on safety and liquidity.

The rating agency said: "given this exposure to G-secs, PNBDF is significantly protected from rating downgrades of the corporate paper that could be prompted by a slowdown in the economy." All these helped the fund to achieve the highest credit risk rating.

The rating agency said that though the one and two-year returns from the fund were higher than the average level, on a risk adjusted basis returns were in the average category. This restricts the fund only to receive the average grading of 'mf3+'.