Rating fund houses
Crisil has launched India’s first fund house rating based not on product performance, but “fund governance and process quality.” The idea is to offer a comprehensive view of asset management companies (AMCs). The HDFC Asset Management Company has been awarded the highest rating of ‘Fund House Level 1’ in a five-level rating.
In this rating, fund houses are evaluated on five parameters: organisational structure and corporate governance; investment processes; risk management practices; operational processes and selling and client servicing practices.
The rating will be done only when fund houses approach Crisil for one. Moreover, to encourage more fund houses to start trying the product, they have the option of not using the ratings they receive. Two fund houses that got themselves rated are currently not using them.
The product’s utility for investors and distributors is fairly limited currently because only those AMCs which get good ratings are likely to make their ratings public. Others may choose not to. But sooner or later, opting out may not be an option. Corporate and big-ticket investors may start demanding a rating; Sebi may also mandate one. At lhe AMC level, any rating, irrespective of whether it’s made public or not, can be used as valuable feedback to improve functioning. If the rating given is not good enough, AMCs can always go back to the drawing board, figure out what went wrong and seek another rating process.
