MYTH-20. FUNDS WITH HIGHER RATING PERFORM BETTER
·
Ratings are based
on past performance and don’t guarantee future returns as well.
·
A scheme’s
performance is not seen in isolation but is rated on the basis of how it
performed relative to the other funds in the category, i.e. on the percentile
score of the schemes.
·
Ratings can also
change over time depending on their percentile score.
·
Fund ratings also
work on a ‘one size fits all’ rule, and don’t tell whether the scheme is
suitable for an aggressive or a conservative investor.
·
At best, fund
ratings can serve as a starting point for initial screening to identify a
broader set of funds.
·
Thereafter, the
investor should also look at other factors before choosing a particular fund.