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Value Research Rating for Mutual Funds

Last Update Date : April 30, 2019
Estimated Read Time: 5 min

Value research is a website that gives accurate ratings to different mutual funds. Value research rating for a mutual fund is like Edmunds car rating for different cars. The rating is highly dependable which is why a lot of mutual fund investors accept the rating provided by value research. Any mutual fund that gets a 5-star rating by Value Research online is considered as the best option for investment.

What is Value Research Rating?

A risk-adjusted rating which includes the composite measure of returns and risk and which is also highly convenient is Value Research Fund Rating. The rating is purely quantitative and does not have a subjective component to the fund rating. The assessment and the rating, however, does not reflect the opinion of the Value Research company regarding the potential of a mutual fund investment in the future. The Value Research Fund Rating gives only a quick summary about a mutual fund as per the per its performance in the past and present as compared to its peers.

Value Research calculates the risk and return score of a mutual fund based on different parameters. The calculation is nothing by subtraction of risk score from the return score.

How are the Funds Rated?

To assess every fund’s risk rating regarding other funds in equity and hybrid fund categories, the fund ratings of over two time periods are combined together. The fund ratings for debt funds are based on risk-adjusted performance which is stretched over 18 months weekly, relative to other funds in the same category.

If an equity fund or hybrid fund’s performance is less than 3 years and a debt fund has less than 18-month track record for performance, Value Research will not rate them. Also, each category should at least have 10 funds so that it can be compared and then rated. Moreover, Value Research online included an additional criterion for qualification, wherein a fund having less than Rs 5 crore of average AUM in the past 6 months will be ineligible for rating.

What is Value Research Fund Risk Grade?

A quantitative assessment of a mutual fund’s risk of loss is known as the Value Research Fund Risk Grade. This risk grade is significantly different from the usual conventional risk and the volatility measures such as standard deviation and beta. This approach is taken so that it doesn’t indicate negative volatility like other grades. It means that the fund risk grade refers to time period of when a fund underperforms and absolute losses even on a risk-free guaranteed investment.

The idea behind this fund risk grade is that a mutual fund investor can get a guaranteed return if he invests in a guaranteed risk-free investment similar to a bank deposit. Therefore, the risk of a mutual fund investment should include the possibility of monetary loss as well as reflect an investor’s chance of earning lesser than what they would have earned on a guaranteed investment.

How is Fund Risk Calculated?

For calculating the Fund Risk for equity and hybrid funds, monthly fund returns are compared to the monthly risk-free return, and for debt funds, weekly fund returns are compared against weekly risk-free return. The 45-180 days Term Deposit Rate of State bank defines risk-free return. The magnitude of an underperformance is added for all the months or weeks that a fund has underperformed the risk-free return. This, therefore, helps Value Research to come to a conclusion about the average underperformance and how a fund has performed regarding its category average. The relative performance of a mutual fund is displayed as a risk score.

The risk score of the fund is assigned as per the distribution shown below:

Risk ScoreDistribution
HighTop 10%
Above AverageNext 22.5%
AverageMiddle 35%
Below AverageNext 22.5%
LowLast 10%

What is Value Research Fund Return Grade?

A mutual fund’s risk-adjusted return is captured by the Value Research Fund Return Grade as compared to other funds in a similar category. However, though the returns are adjusted for bonus, rights or dividends, they are not adjusted for loads. The monthly or weekly return of the fund is compared to the risk-free monthly or weekly return in order to arrive at the mutual fund’s total return exceeding the risk-free return. To arrive at the final score, the average monthly risk-adjusted return is compared to the category average return. A risk-free return is utilised as a benchmark if there is negative average category return. If a score is exceeding by one, it shows that the mutual fund has performed better than the category average and vice versa.

How is Value Research Rating Useful?

Since we have already seen the calculation mechanism as to how Value Research Rating helps determine the best mutual fund that you can invest in, it is safe to say that you can depend on the ratings that the site provides. However, while investing you should always keep in mind that the risk score of a mutual fund should be low with higher return grade.

People Also Ask

Q. Is the Value Research’s Fund Rating solely based on returns?

A. No. The star rating depends on a measure that is a balance between both the return and the risk.

Q. What is the frequency of calculating the ratings?

A. The ratings are calculated and updated every month.

Q. Are the mutual fund companies charged by Value Research to rate their fund?

A. No. The companies are not charged for rating their funds or for using their ratings.

Q. Are management fees considered by Value Research while rating a fund?

A. Yes, Value Research calculates Star Rating on returns that a fund earns after the management fees. Any other special consideration is not given to management fees.

Q. What is the history that a fund requires to be rated?

A. Ratings are done only when equity and hybrid funds are more than 3 years old and debt funds for more than 18 months.

Q. I have invested in a mutual fund which has only received 2 stars by Value Research. Should I sell it?

A. Though the Star Rating is a first screen for the mutual funds, it still is only an introduction to a fund and not a conclusion. The fund rating is done by evaluating the past. The future of the mutual fund is not predicted by the Star Rating. Therefore, you need not necessarily send the fund.

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Chetan Chandak (B.Com, LLB)
Chetan is the Head of Tax Research at H&R Block (India) with an experience of more than a decade in tax advising. He is also a regular contributor for some of the leading news publications in India such as Economic Times, Financial Express and Money Control. Professionally, Chetan is fascinated by international taxation and expat-related tax research.

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