How Mutual Fund ratings can be misleading

I hold  ICICI Prudential Top 100 Fund in my portfolio and according to Valuersearch its a 3 star rated fund in muti-cap category. Also according to valueresearch, the fund is  ranked low compared to other mutual funds in multi-cap category.

 The 3 year returns for the fund is 16.94% while average returns for the category is 19.79%
Similarly the fund returns are below the category average for 5 year and 10 Year period.
My first reaction was to sell it off and buy a good large cap fund instead. 
On doing some more analysis I found that  ICICI Prudential Top 100  is in fact a large cap fund and valueresearch for some reason labels it as multi-cap. As a consequence the returns for this fund appear low compared to multi-cap funds and gets low rating which is not correct. 

 The fund description in ICICI mutual fund website clearly mention that this a large cap fund.
https://www.icicipruamc.com/icici-prudential-mutual-fund/funds/equity-funds/ICICI-Prudential-Top-100-Fund

 Also from portfolio of  snapshot from valueresearch it's also clear  that fund has stock portfolio which consists of 80% large cap stock.
What if returns for this fund were compared to average returns from large cap funds.
                      
                         ICICI TOP 100      Category Average 

 1Year                       30.79%                   21.05%
3year                       16.94%                   14.57%
5year                       16.34%                   13.55%
10year                     12.58%                   10.44%

 Evidently ICICI TOP 100, performs much better when compared to other large cap funds. The fund if compared to its correct category of large cap funds would be rated 5 star instead of 3 star currently.
For me it's an easy decision now, ignore the rating and stay invested in this fund, which is managed by one the best fund managers in industry.

 Morning star correctly labels this fund as cap and have put decent analysis of the fund on their website.
http://www.morningstar.in/mutualfunds/f0gbr06r08/icici-prudential-top-100-fund-growth/analyst-research.aspx

I had ranked funds in my earlier post http://moneybhasa.blogspot.in/2017/02/top-5-equity-mutual-funds-in-each.html and if I were to include this in large cap rankings, the fund woud be sitting at number 5 out of 27, ahead of SBI Blue chip

Comments

Phani Kumar said…
Hey, thanks for the information. your posts are informative and useful. I am regularly following your posts.
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June 20, 2020 at 3:21 AM
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