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What Is Crisil Rating?

•6 min read•by Angel One
CRISIL ratings show how safe or risky a company or financial product is. They help investors choose better options and understand how mutual funds perform based on safety, returns and stability.
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Credit Rating Information Services of India Ltd., or CRISIL, is a company that provides risk and policy advisory services along with ratings and market research. It is a subsidiary of S&P – the latter owns a majority stake in CRISIL. Established in 1987, it is India’s first credit rating agency. 

In this article, let’s understand the CRISIL meaning and understand how the CRISIL ratings help you decide your ideal mutual fund investment. 

Key Takeaways 

  • CRISIL ratings show the credit health and safety of companies and financial instruments. 

  • They help investors make smarter and safer investment decisions.  

  • Mutual funds are ranked from 1 to 5 based on returns, risk and stability.  

  • High CRISIL ranks usually mean better performance and lower risk. 

Understand CRISIL Rating 

CRISIL Ratings Ltd. is a pioneer of credit rating in India. It rates financial instruments and  organisations, which determines their creditworthiness. Such organisations may include manufacturing companies, financial corporations, banks, NBFCs, government and government bodies, PSUs, MSMEs, real estate projects, educational institutions and mutual funds. Financial instruments related to such organisations that are rated by CRISIL may include bonds, debentures, bank loans, commercial paper, collateralised securities, etc. 

CRISIL rating list helps potential investors make informed decisions related to investment in financial instruments and companies. It also helps companies raise capital by giving them a higher degree of legitimacy and approval; therefore, many organisations use their CRISIL ratings as a key point in their marketing. 

For financial instruments and organisations, CRISIL rates the safety of the investment in the instrument or the organisation with symbols – CRISIL AAA shows the highest safety, followed by AA, A, BBB, BB, B, C, and finally Default or D respectively – sometimes CRISIL may add a (+) or a (-) to the symbol. 

CRISIL releases rankings of mutual funds – the rankings are used by investors alongside other variables such as Net Asset Value, Asset Under Management, Sharpe Ratio, etc. 

What Types of Mutual Funds Are Ranked? 

Equity Funds Categories Ranked by CRISIL:  

CRISIL assesses various types of equity funds to provide rankings, including: 

  • Flexi Cap Funds 

  • Multi Cap Funds 

  • Mid Cap Funds 

  • Small Cap Funds 

  • Value or Contra Funds 

  • Focused Funds 

  • ELSS (Equity Linked Savings Schemes) 

  • Index Funds 

  • Debt Funds Categories Ranked by CRISIL: 

CRISIL evaluates the performance of different debt funds, covering: 

  • Gift Funds 

  • Banking & PSU Funds 

  • Credit Risk Funds 

  • Corporate Bond Funds 

  • Medium to Long Duration Funds 

  • Medium Duration Funds 

  • Short Duration Funds 

  • Low Duration Funds 

  • Ultra Short Duration Funds 

  • Dynamic Bond Funds 

  • Money Market Funds 

  • Liquid Funds 

Hybrid Funds Categories Ranked by CRISIL: 

Within the hybrid funds category, CRISIL assesses: 

  • Aggressive Hybrid Funds 

  • Conservative Hybrid Funds 

  • Arbitrage Hybrid Funds 

What Are the Rankings Categories?

 CRISIL Fund Rank Categories: 

  • Rank 1: Exceptional Performance 

Top-tier funds with outstanding and consistent performance. 

  • Rank 2: Good Performance 

Funds showcasing reliability and competence. 

  • Rank 3: Average Performance 

Mutual funds provide steady returns without outperforming top performers. 

  • Rank 4: Below-Average Performance 

Funds with challenges or weaker returns require careful consideration. 

  • Rank 5: Relatively Weak Performance 

Funds demonstrating weaker performance necessitate careful assessment of associated risks. 

Understanding CRISIL Percentile Scores: 

  • Top 10 Percentile (Rank 1): 

Funds in the 1st to 10th percentile signify exceptional performance. 

  • 11th to 30th Percentile (Rank 2): 

Rank 2 includes funds in the 11th to 30th percentile, indicating good and reliable performance. 

  • Remaining Percentiles (Ranks 3, 4, and 5): 

Ranks 3, 4, and 5 represent average, below-average, and relatively weak performance, respectively. Investors can use CRISIL rankings for informed decisions based on quarterly reports and percentile scores. 

How is CRISIL Rating Used For Investment Decisions? 

The CRISIL rating shows the financial health of an organisation in terms of its ability to meet its liability obligations on time regularly. CRISIL regularly updates its ratings – hence if investors lack the time or the resources to make a particular investment decision, then they can refer to the CRISIL rating (and reports, if available) to come to a decision. 

Limitations of CRISIL Ratings 

Despite its many advantages, CRISIL ratings are not without certain limitations. These include: 

  1. One of the biggest limitations of CRISIL ratings is that they are only as good as the data provided.  It may not reflect the actual risk if the company provides incomplete numbers or data, or if they create a false image. 

  1. Another disadvantage is that they miss sudden shifts. This includes management changes, fraud, economic shocks, geographical events, etc. This may affect repayment capacity after the rating has been issued.  

  1. Interpretation is another limitation for retail investors. Without background knowledge, the ratings may seem complex and difficult to decode. And while CRISIL updates its ratings, there still may be a gap between reality and the next review cycle.   

How are CRISIL Ratings Different from Other Agencies?  

CRISIL ratings stand out from other credit rating agencies in India because of their strong credibility and wide coverage. India has several agencies such as ICRA, CARE and India Ratings. However, CRISIL is considered a leader due to its deep analytical strength, wide sector research, and consistent rating processes.  

CRISIL also provides detailed insights through its research arm, which adds value beyond just giving grades. It was the first credit rating agency in India, set up in 1987, and has built a strong reputation over the years. CRISIL is backed by S&P Global, which gives it international support and expertise. This increases confidence in its methods and the trust it receives from large institutional investors.  

Still, most investors prefer to check ratings from multiple agencies to get a complete picture, as comparing different ratings helps avoid blind spots and supports better financial decisions.  

Understand CRISIL Mutual Fund Rankings 

CRISIL mutual funds rankings are shown on a scale of 1 to 5 – CRISIL Fund Rank 1 being the best (indicating a “very good performance”) and Rank 5 the worst. From a peer group, the top 10 percentile in CRISIL MF ranking is considered as Rank 1 and the next 20 percentile as Rank 2. 

CRISIL Mutual Fund Rankings or CMFR are decided primarily on the basis of the following parameters – 

  1. Superior Return Score – The returns of the fund in comparison to its portfolios 

  1. Portfolio Concentration Analysis – A portfolio with too much diversification is rated low 

  1. Mean Return and Volatility – Mean return is the daily average return based on NAV and volatility refers to the fluctuations in returns 

  1. Quality of Asset – It refers to the likelihood of the debtors (in a debt fund or a hybrid fund) not defaulting on timely repayments 

  1. Liquidity – Basically the ease with which a fund can liquidate its position 

  1. Tracking error – Applicable only to funds that are tracking any indices, this measures the variation in the fund’s performance from the performance of the index that it is tracking 

  1. Exposure to sensitive sectors – It measures the Industry Risk Score to assess the risks associated with the industry that the stock/debt is related to 

  1. Counting of negative returns – The downside risks associated with Arbitrage Funds are measured by this metric 

However, it is important to remember that each fund operates in a particular context, which CRISIL mutual fund rankings takes into account when assessing its performance and creditworthiness. 

Conclusion 

It is clear that the CRISIL credit ratings are a very useful tool for both retail investors trying to judge one or two fixed-income securities or equities, as well as large investors and traders trying to make profits from trading in debt and equity. If you want to become an investor or a trader yourself, start reading up on financial markets and then try opening a Demat account with a trusted online brokerage platform. 

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FAQs

CRISIL, short for Credit Rating Information Services of India Limited, is an Indian analytical company providing ratings, research, risk, and policy advisory services.
The Securities and Exchanges Board of India (SEBI) regulates the capital markets in India, including rating agencies like CRISIL.
CRISIL and other rating agencies rate corporations and other organisations offering deposits – some may fail to provide interest or principal on time and hence it helps if ratings are available for such organisations and instruments.

Yes, credit ratings are helpful when you invest in debt mutual funds. They show the credit quality of the securities held by the fund and help you understand the risk of default. While ratings should not be the only factor, they guide safer and more informed investment choices. 

No, a CRISIL rating does not guarantee repayment. It only reflects the current creditworthiness of a company or financial instrument. Ratings indicate the level of risk but cannot predict unexpected financial changes. Investors should use ratings as guidance along with their own research and financial advice. 

In India, rating agencies are regulated by SEBI. SEBI sets the rules agencies must follow to ensure fairness, transparency and reliability in the rating process. This regulation protects investors and maintains trust in the financial system by ensuring agencies follow strict and standardised procedures. 

Credit ratings help investors understand the risk involved in lending money or investing in financial instruments. They show whether a company is likely to repay on time. This helps investors compare options, avoid high-risk choices and make safer, more informed decisions before investing. 

Credit ratings may change due to shifts in a company’s financial health, changes in debt levels, poor cash flow, delays in repayments, or changes in market conditions. Strong financial performance can lead to upgrades, while weakening performance or rising risk can result in downgrades. 

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