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MoneyWorks4Me Method to Evaluate and Rank Mutual Funds for SIP


MoneyWorks4Me’s rating and ranking of funds for SIP is for subscribers only. Moneyworks4Me is not a rating and ranking agency, but users need to have a way to select funds and create a portfolio. The method used by MoneyWorks4Me is described below to enable users to understand the logic behind the rating and ranking. Subscribers will find more details about this in the various content made available from time to time. If you need more information, please write to besafe@moneyworks4Me.com

MoneyWorks4Me evaluates and ranks mutual funds based on the following data-driven system:

  1. Performance Consistency: This is a measure based on whether the fund has consistently beaten the benchmark. For this, we compare the fund’s 3-year rolling returns with the benchmark for at least 5 years and preferably 10 years. The rolling period is one month and the holding period is 3 years. Funds are coded green on performance when the fund beats the benchmark more than 90% of the time. It is orange if it beats 80% to 90% of the time and red if less than 80%. Funds with data for less than 5 years are coded gray.
  2. Quality of the portfolio held: Moneyworks4Me has coded stocks green, amber and red based on how well the company’s performance has generated a ROCE above a threshold level (cost of capital) over 10 years (minimum 6 years) and generated positive free cash flow. For banks, it looks at whether the ROE is above 15% and whether sales have increased compared to the previous year. Stocks that consistently perform on these combined measures are coded green (minimum score 14 out of 20), amber (between 8 and 14) and red (less than 8 out of 20).
  3. Funds are coded green provided that the portfolio is composed of 70% green stocks but no more than 20% red stocks. Funds with a portfolio composed of more than 20% red stocks are coded red. The others are orange funds.

Ranking of funds in screeners:Consistency and quality of performance are two parameters used to rank funds for SIP. The ranking is as follows: GG, GO, GR, OG, OO, OR, RG, RO and RR.

With the same color-coded funds, the one with the highest rolling 3-year average return (over 5 to 10 years), the number that appears in the Performance label, is ranked higher.

Here is the summary :

The third tag Upside Potential is not relevant for SIP. It is relevant for lump sum investments in mutual funds.



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