Investing in mutual funds can be a complex endeavour given the multitude of options available. To simplify this process, 1 Finance has developed a Mutual Fund Scoring and Ranking system designed to assist investors in making informed decisions.
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Mutual Fund Scoring and Ranking Blog
The 1 Finance Score is a comprehensive evaluation tool that assigns a score between 0 and 100 to each mutual fund scheme. This scoring system assesses various key parameters to provide an unbiased analysis of a fund’s performance. The scores are categorised as follows:
- 75 – 100: High
- 50 – 75: Medium
- 0 – 50: Low
Scoring Methodology
1 Finance employs a systematic, algorithm-based approach to evaluate mutual fund schemes. The evaluation process consists of multiple steps:
- Key Ratio Analysis: This involves analysing fundamental ratios over the past 10 years or available data to assess risk-adjusted investment returns. Key ratios include:
- Sharpe Ratio: Measures investment return relative to its volatility, indicating how much excess return an investor receives for taking on additional risk.
- Sortino Ratio: Similar to the Sharpe Ratio but focuses solely on downside risk, providing a better assessment of an investment’s performance in unfavourable conditions.
- Treynor Ratio: Evaluates investment return adjusted for systematic (market-related) risk, helping investors compare investments based on their sensitivity to market movements.
- Jensen’s Alpha: Compares an investment’s actual return to the expected return based on its market risk.
- Fund Manager Analysis: This step evaluates the fund manager’s past performance, considering factors such as:
- The amount of alpha generated by the fund manager in the same fund category they currently oversee.
- The fund manager’s cumulative experience in managing funds within the same category.
- The fund manager’s overall experience, spanning different market conditions and fund categories.
- Final Score Calculation: The final scores are derived from the amalgamation of the Fund Score and Fund Manager Score. Mutual fund schemes are scored on a scale of 0 to 100, with 100 being the highest score and 0 being the lowest.
- Ranking: Rankings are determined by assessing the final scores of the funds, thereby showcasing their relative standings within their respective categories.
This comprehensive methodology ensures that investors have access to unbiased, data-driven insights, enabling them to make well-informed decisions when selecting mutual funds that align with their financial objectives.
For more detailed information, you can visit the Mutual Fund Scoring and Ranking page on 1 Finance’s website.
