5-star rating
How MintByte assigns 1–5 stars to mutual fund schemes — a composite quintile rank across risk-adjusted return, consistency, expense efficiency, and AUM stability.
The MintByte star rating condenses four observable characteristics of a mutual fund scheme — how well it has returned relative to risk, how consistently it has done so, how efficiently it charges, and how stable its asset base has been — into a single 1–5 tier. Five stars is the top quintile across all four dimensions simultaneously. One star is the bottom.
The rating is a description of past behaviour, not a prediction. It helps you eliminate obviously poor funds quickly and focus due-diligence time on the 4- and 5-star cohort. It does not constitute investment advice or a recommendation to buy, sell, or hold any scheme.
Why four dimensions
Any single metric can be gamed or obscured by favourable market conditions. A fund that earned 22% annualised during a bull market may show excellent Sharpe simply because the whole category moved. By requiring top-quintile performance across four independent dimensions, the rating identifies funds where quality is multi-faceted rather than accidental.
The four dimensions and their weights in the composite score:
| Dimension | Weight | What it captures |
|---|---|---|
| Risk-adjusted return (Sharpe) | 40% | Excess return per unit total volatility over 3Y |
| Consistency (quartile-hit rate) | 30% | Fraction of rolling 1Y windows where fund ranked in top 2 quartiles of category |
| Expense efficiency (TER drag) | 15% | TER relative to category median; penalises excessive fees |
| AUM stability | 15% | Net flow volatility over 12 months; rewards stable inflow patterns over erratic AUM swings |
Step-by-step computation
Step 1 — Universe selection
Only direct-plan, growth-option schemes in SEBI-defined open-ended categories are rated. Sectoral/thematic funds, Fund of Funds, and FMPs are excluded — their category peer groups are too small or too dissimilar for quintile ranking to be meaningful. Minimum history: 36 months of monthly NAV data.
Step 2 — Per-dimension score (0–100)
For each dimension, each fund in a peer category is assigned a percentile rank from 0 to 100 (higher = better). A fund at the 80th percentile on Sharpe receives a Sharpe score of 80.
- Risk-adjusted return score: Percentile of 3Y Sharpe ratio within SEBI category peer group. See Sharpe Ratio.
- Consistency score: Rolling twelve 1-year windows (monthly shifted) over 36 months. For each window, the fund is ranked within its category. Consistency score = fraction of windows where it ranked in the top half × 100.
- Expense efficiency score:
(1 − TER_fund / TER_category_median) × 100, capped at 100. A fund at exactly the category median scores 50; one at half the median scores 100. See Expense Ratio Drag. - AUM stability score: Inverse of coefficient of variation (σ/μ) of monthly net AUM change over 12 months, normalised to 0–100 within the category. A fund with very stable net inflows scores high; one with erratic redemptions or sudden large inflows scores low.
Step 3 — Composite score
composite = 0.40 × sharpe_score
+ 0.30 × consistency_score
+ 0.15 × expense_score
+ 0.15 × aum_stability_score
Step 4 — Quintile assignment
Within each SEBI category, composite scores are ranked and split into five equal bands:
| Quintile | Stars | Percentile band |
|---|---|---|
| Top 20% | ★★★★★ | 80th–100th |
| Next 20% | ★★★★ | 60th–79th |
| Middle | ★★★ | 40th–59th |
| Next 20% | ★★ | 20th–39th |
| Bottom 20% | ★ | 0th–19th |
Stars are assigned within category only — a 5-star small-cap fund is the top-quintile small-cap; it is not being compared to large-cap funds.
Regulatory context
SEBI circular SEBI/HO/IMD/IMD-I/DOF1/P/CIR/2021/647 (November 2021) specifies disclosure standards for fund rating methodologies published by distributors and platforms. MintByte's methodology is published here and updated each time the computation logic changes materially.
AMFI's guidance on fair disclosure of fund ratings (March 2022 circular) requires that ratings be category-relative and that the peer universe be explicitly defined. The universe definition above satisfies both requirements.
Recomputation cadence
Stars are recomputed monthly, after the month-end NAV and TER data are refreshed. The recomputation runs on or after the 5th of each month to allow all AMCs to file NAV data with AMFI. A fund's star rating can move one to two tiers between recomputations; large swings are typically caused by the rolling window aging out a particularly strong or weak year.
What stars do not capture
- Fund manager change: a 5-star rating built over three years may reflect a fund manager who has since left. Check manager tenure independently.
- Benchmark change: if an AMC reclassifies a scheme or changes its benchmark mid-window, the 3-year composite may blend two different regimes.
- Category migration: SEBI recategorisations (last major one: 2018) can shift a fund's peer group. Stars are recalculated from scratch whenever peer-group membership changes.
Related methodology
- Sharpe Ratio — the primary risk-adjusted return input.
- Sortino Ratio — a downside-only variant used in supplementary fund analysis.
- Quartile Rank — the rolling-window mechanism underlying the consistency score.
- Expense Ratio Drag — how TER is computed and its compound effect.
Sources
Monthly NAV: AdvisorKhoj API (AMFI AMFIINDIA.COM as fallback). TER: monthly disclosures via AMFI data feed. AUM: monthly fund house disclosures. SEBI category definitions: SEBI circular SEBI/HO/MFD/MFD-PoD-1/P/CIR/2023/90 (category rationalisation, 2023 update).