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A mix of quantitative and qualitative parameters are used to shortlist schemes. The focus is on equity and debt schemes; liquid schemes are not included in this listing since they are meant for short-term needs and most often used by companies rather than individuals.

The listing uses Value Research (VR), an MF tracking firm, for its star ratings and data. VR ranks schemes across categories according to their risk-adjusted returns and assigns star ratings to them. While a 5-star fund is the highest-rated fund, a 1-star fund is the lowest. Star ratings are assigned because the variance between two ranks can be statistically insignificant. For instance, two schemes ranked fifth and seventh may add the same amount of value to your portfolio.

The logic to use risk-adjusted returns rather than just returns is to build in a system that includes the risk a fund faces along with its ability to turn a return. Some risks are quantitative and, therefore, they can be mathematically arrived at, while few others are qualitative and we need to know the fund manager’s strategy to be able to understand them. Among the former is a number called “downside risk" that measures—to put it simply—a fund’s excess in returns on the downside over a risk-free rate, typically a debt scrip that carries zero risk and gives modest returns.

A risk-adjusted return is a fund’s return that is arrived at by deducting the downside risk from its return. Typically, higher the risk-adjusted return better is the fund because it shows that the fund has average to above average return with lower risk.

Star ratings are a good indication of how schemes have performed in the past. Ultimately, it is a report card that gives a good insight about a fund’s past, but tells little about how the fund is poised to do in the future. That is where Mint50 comes in. Once we have the basic list of 3-star, and above, rated schemes, we run our qualitative checks such as a study of portfolio strategies, how fund managers manage their schemes, their pedigree, performance in rising and falling markets to be able to cull out a list of 50 schemes that we feel are best suited to perform here on.

Mint50, that started in January 2010, is audited twice a year when laggards are removed and new funds move into the investment-worthy fund list. Schemes move out because either they perform badly or if there is a better alternative outside Mint50. Readers may notice some schemes that drop below 3-stars. The reason for this is that when we picked such a scheme, it was 3-star rated but has subsequently dropped in performance. Such a scheme is put on a watchlist and we do not recommend fresh investments. The scheme may drop out of Mint50 in the next audit. Mint50 aims to keep you invested for the long term and does not like too much churn in the portfolio.

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