what is 5 star rating & 3 star rating & 1 star rating in mutual funds ?

I wish to invest in mutual funds , I just taking the knowledge of mutual funds , I had visited several website concern to mutual funds , such as money control , mansukh , bluechip , sarajit datta , etc , Now I wish to ask what is the exact meaning of 5 star mutual funds , 4 star mutual funds , 2 star mutual funds ETC , is that it means that 5 star mutual funds are very very good compare to 2 star mutual funds or 1 star mutual funds , please explain me this , ( please note that I wish to invest in equity diversified or ELSS ) also say if I just invest in 5 star mutual funds or 4 star mutual funds whose fund asset size is large / grater than 1000 crores or 500 crores , is that my thinking proper or I am wrong , please help me , or should I invest in just looking to 5 star funds whose fund asset size is less than 50 crores , but past performance is good , please help me .

7 Replies to “what is 5 star rating & 3 star rating & 1 star rating in mutual funds ?”

  1. The star rating is a rating usually given by an investment advisor or analyst. You will need to look at the the criteria that the advisor or analyst used in rating that particular fund. Reading the analyst report that gave the fund that rating should tell you what assumptions and why the fund received that rating.

    Investing off of ratings is not the best idea. You should look through the fund prospectus/offering memorandum. This should tell you the investment strategy and the make-up of the fund. If you are comfortable with the fund then invest. Just keep in mind that all of the funds of sub-prime mortgage backed securities were top rated in 2007 – right up until they started to default.

  2. Star rating generally depends on the funds performance the way the fund manager runs the fund to get maximum results in your favor & how sound assets does it possess. Therefore more the star rating the better the fund is.

    You can go for either 5 Star Or 4 Star rated funds.

    As for ELSS or Eq Diversified depends on weather you want to save Tax or not. The difference between both is ElSS is Tax saving Instrument under section 80C therefore 3 yr locking & Eq Diversified is not, you can liquidate your money any time.

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  3. I am not a big fan of star ratings on funds. They represent someone opinion. I like to check the managers record. I blog about funds all of the time but they are my opinion.

  4. These start ratinf is not absolute rating. They are for our guidence only. There are rated fund doing worse.

    You should looks for mnay factors before investing. All site will have different start rated funds.
    You should look for AMC first and then the fund size of more than 500 CRS before investing.
    Many index fund have little corpus size. Compare the rated fund from different site and pick the common one aftre seeing the consistency of fund.

  5. The star rating generally evaluates the risk-adjusted performance of the fund relative to its peer group. In the Morningstar ratings, 5 stars means it is in the top 10% of its peer group, 4 stars means it is in the next 20%, 3 stars means it is in the middle 40%, 2 stars means the next 20%, and 1 star means it is in the bottom 10%.

    Generally, most people should just look at funds with 3 stars or better (there are some rare exceptions to this rule).

    I hope that helps. Good luck

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