How MFIQ Ranks & Scores Mutual Funds

1. What MFIQ Shows

MFIQ is a free, fast, 100% objective mutual fund screener and analytics engine for Indian mutual fund investors. It aggregates daily Net Asset Value (NAV) records directly from the Association of Mutual Funds in India (AMFI) to compute standardized performance, annualized risk, rolling return consistency, and comparative category scores.

MFIQ does not sell mutual funds, receive distribution commissions, collect user leads, or offer personalized investment advice. All rankings and scores are purely algorithmic outputs computed from historical data.

2. Fund Universe & Inclusions

MFIQ tracks active, open-ended mutual fund schemes across two broad groups:

• Equity Categories: Large Cap, Mid Cap, Small Cap, Large & Mid Cap, Multi Cap, Flexi Cap, Focused, ELSS (Tax Saver), Value, Contra, Dividend Yield, and Sectoral/Thematic.
• Hybrid Categories: Aggressive Hybrid, Balanced Advantage (Dynamic Asset Allocation), Multi Asset Allocation, Conservative Hybrid, Arbitrage, and Equity Savings.

Strict Exclusions: MFIQ excludes Direct plans (to maintain a uniform distribution basis), Dividend / IDCW options, bonus options, segregated portfolios, passive index funds, exchange-traded funds (ETFs), closed-end schemes, and fund-of-funds (FoFs).

3. Data Sources & Attribution

Data is sourced from AMFI via the free tigzig MF API (api.tigzig.com/mf/v1), credited to Amar Harolikar. Secondary automated fallbacks include the open-source mfapi.in NAV endpoint and AMFI official portal text files.

Daily synchronization runs incrementally after market close, caching NAV history locally in compressed Parquet files to minimize network overhead and respect rate limits.

4. Data Cleaning & Structural Splits

Before any statistical calculation takes place, raw NAV streams undergo automated validation:

• Non-positive NAV removal: Any NAV values equal to or less than zero, or missing null entries, are dropped.
• Deduplication: Multiple NAV entries on identical dates are resolved by retaining the latest record.
• Bad Spike Filtration: Temporary 1-day erroneous spikes (e.g., sudden 3x jump reverting the subsequent day) are flagged and eliminated.
• Unit Split Detection: AMFI NAV series are not retroactively split-adjusted. If an unadjusted face-value change or split causes an irreversible overnight shift (>2.0x or <0.5x), history is automatically truncated to start post-split, and an audit note is logged in data/meta.json.

5. Mathematical Formulas & Conventions

MFIQ uses an annualized trading day convention of 252 trading days and a constant annual risk-free rate of \(R_f = 6.5\%\) (daily equivalent \(R_{f,d} = (1 + 0.065)^{1/252} - 1 \approx 0.00025\)).

Point-to-Point & Compound Returns

• Absolute Return (1M, 3M, 6M, 1Y): \(\text{Return} = \frac{\text{NAV}_{\text{end}}}{\text{NAV}_{\text{start}}} - 1\)
• CAGR (3Y, 5Y, 7Y, 10Y, Since Inception): \(\text{CAGR} = \left(\frac{\text{NAV}_{\text{end}}}{\text{NAV}_{\text{start}}}\right)^{\frac{365.25}{\text{days}}} - 1\)
• Calendar Year Return: Percentage change from the final NAV of the prior calendar year to the final NAV of the target year. Current year reflects YTD.

Risk & Volatility Metrics

Computed on daily returns over the last 3 years (or 1 year for schemes aged 1 to 3 years):

• Annualized Standard Deviation (\(\sigma\)): \(\sigma_{\text{ann}} = \text{std}(r) \times \sqrt{252}\)
• Sharpe Ratio: \(\text{Sharpe} = \frac{\text{mean}(r - R_{f,d}) \times 252}{\sigma_{\text{ann}}}\)
• Sortino Ratio: \(\text{Sortino} = \frac{\text{mean}(r - R_{f,d}) \times 252}{\sqrt{\text{mean}(\min(r - R_{f,d}, 0)^2)} \times \sqrt{252}}\)
• Beta (\(\beta\)): \(\beta = \frac{\text{Cov}(r_{\text{fund}}, r_{\text{bm}})}{\text{Var}(r_{\text{bm}})}\)
• Jensen's Alpha (\(\alpha\)): \(\alpha = \left[\text{mean}(r_{\text{fund}} - R_{f,d}) - \beta \times \text{mean}(r_{\text{bm}} - R_{f,d})\right] \times 252\)
• R-Squared (\(R^2\)): Square of the Pearson correlation coefficient between fund and benchmark proxy daily returns.
• Upside / Downside Capture: Ratio of average fund monthly return to average benchmark monthly return during positive and negative benchmark months respectively.
• Drawdown: Percentage drop from the highest cumulative peak NAV: \(\text{DD}_t = \frac{\text{NAV}_t - \max_{0 \le s \le t}(\text{NAV}_s)}{\max_{0 \le s \le t}(\text{NAV}_s)}\).

6. Benchmark Proxies & Approximations

Official TRI (Total Return Index) feeds from stock exchanges are proprietary and paywalled. To provide institutional analytics at zero cost, MFIQ utilizes investable, low-tracking-error Direct Growth index funds as proxies:

• Large Cap & Hybrids: HDFC Nifty 50 Index Fund Direct Growth
• Mid Cap: Motilal Oswal Nifty Midcap 150 Index Fund Direct Growth
• Small Cap: Motilal Oswal Nifty Smallcap 250 Index Fund Direct Growth
• Flexi Cap / Multi Cap / Others: Motilal Oswal Nifty 500 Index Fund Direct Growth

Note: For Conservative Hybrid, Arbitrage, and Equity Savings categories, benchmark lines, Alpha, Beta, and capture ratios are omitted because equity indices do not represent suitable debt/arbitrage yardsticks.

7. How RANK Works

MFIQ ranks funds by risk-adjusted consistency rather than raw return:

1. Tier 1 (3+ Years History): Sorted in descending order of 3-year Sharpe ratio. Ties are broken by 3-year CAGR, followed by 1-year return.
2. Tier 2 (1 to 3 Years History): Ranked sequentially immediately following the 3-year group in descending order of 1-year Sharpe ratio.
3. Tier 3 (Under 1 Year History): Unranked (displayed as - and listed at the bottom), as short histories are statistically unrepresentative.

Ranks are computed both In Category (relative to same-category schemes) and Overall.

8. How SCORE Works (with Worked Example)

The MFIQ Score is a 0 to 10 composite metric. Each fund's metrics are converted into a percentile rank within its category cohort (scaled 0 to 10), then combined across four weighted pillars:

• Returns (30%): Average percentile of 3-year and 5-year CAGR (or 1-year if 3Y is unavailable).
• Risk Management (30%): Equal-weighted percentile composite of Sharpe ratio (higher is better), downside capture (lower is better), and max drawdown (closer to zero is better).
• Consistency (20%): Equal-weighted composite of % positive 3-year rolling return periods and share of past 5 completed calendar years beating category median.
• Cost Efficiency (20%): Percentile rank of Total Expense Ratio (lower expense earns higher score).

Missing Data Rule: If a pillar cannot be computed (e.g., missing expense ratio or under 3-year track record), its weight is redistributed proportionally among the remaining pillars. If fewer than 2 pillars exist, no score is assigned (displayed as Unrated).

Labels: 8.5+ Strong, 7.0–8.4 Good, 5.5–6.9 Average, Below 5.5 Weak.

9. Fund Size Bands

Fund size (AUM) is categorized based on percentile rank within its category:

• Too Small: Below 10th percentile (higher risk of scheme merger or mandate closure).
• Small: 10th to 30th percentile.
• Comfortable: 30th to 85th percentile (optimal balance between liquidity and agility).
• Stretched: 85th to 97th percentile (large size, may face deployment friction in mid/small caps).
• Strained: Above 97th percentile (exceptionally large scheme size).

10. Beginner-Friendly Criteria

A scheme receives the "Beginner-friendly" badge only if it satisfies all three conditions:

1. Category must be one of: Large Cap, Flexi Cap, or Balanced Advantage.
2. Scheme operational age must be at least 5.0 years.
3. Scheme assets under management (AUM) must be at least Rs 1,000 crore.

11. Expense Ratios & Capital Gains Tax

Expense Ratio Disclosure: Total Expense Ratio (TER) reflects regular plan recurring costs. From April 2026, statutory regulatory guidelines mandate that total expense ratios encompass all brokerage, transaction costs, and statutory levies over and above the base management fee.

Capital Gains Tax (Finance Act 2024 as of 23 July 2024):

• Equity-Oriented Schemes: Short-term gains (holding period under 12 months) taxed at 20%. Long-term gains (held 12+ months) taxed at 12.5% on cumulative gains exceeding Rs 1.25 lakh per financial year.
• Non-Equity Schemes (e.g., Conservative Hybrid): Capital gains are taxed at your applicable individual income tax slab rates regardless of holding period.

12. Known Limitations

• NAV reporting across smaller AMCs may occasionally experience a 24-hour transmission delay on public AMFI servers.
• Alpha and Beta use index fund proxies with small tracking errors rather than synthetic exchange index total return feeds.
• Historical performance, Sharpe ratios, and scores reflect past data and do not guarantee future returns.

13. Change Log