Mutual fund rankings are a good thing so long as they can give a clear and accurate perspective of performance. Unfortunately, in most cases, rankings leave the investor muddled and do not reveal the true picture.

Most publications and fund research houses do a mutual fund ranking at periodic intervals. Of course, they have different parameters (like absolute return, risk-adjusted return, volatility) to rank the funds, which throw up different sets of results.

There is nothing wrong with that, and if anything it gives the investor a wider perspective because sophisticated investors want to look at a whole lot of parameters before putting their money in a fund.

The problem with most mutual fund rankings is that they take the easy route and in the process only confuse the investors. Returns get more attention than necessary and consequently even the investor is compelled to look at them since that is what the rankings are all about!

Little or no attention is paid to the fund management style and investment processes, which in our view are the most important criteria that need to be evaluated while ranking mutual funds.

Often elaborate rankings are done overlooking the most fundamental of facts in the process. Not surprisingly, the end result is skewed and deceptive. Take for instance the 'intricate' mutual fund rankings undertaken by a leading personal finance magazine in the recent past. In its 'balanced fund' ranking, the number one fund was a child scheme. An investor may want to know what's wrong with that? A child scheme is also a balanced fund at the end of the day.

To be sure, child schemes are also balanced funds, but that is only as far as the portfolio composition is concerned. In terms of fund management, there is a significant difference -- child schemes usually have a lock-in (three years in most cases), which has a positive influence on the fund management as opposed to regular balanced funds that witness redemption pressure every single day.

So typically, child schemes should not be clubbed with balanced schemes and even if they are, there should be something to highlight the lock-in period in the former.

After all, you don't want investors looking at investing in a regular balanced fund, investing in a child scheme instead, simply because its got the best returns! Notice how returns take overriding precedence in the rankings over more important details.

Likewise we have monthly income plans being compared across the board without any kind of differentiation.

Most investors are aware that MIPs, which have become a rage of late, rely on the equity component to give them that much-needed push. Investors are also probably aware that various MIPs have varying equity components.

For instance, some MIPs have a 10% equity cap, some have 15%, while some can go as high as 30% in equities. To get all these MIPs on a single platform and rank them purely on returns is not only imprudent, its downright misleading.

Typically, even if one were to rank MIPs, there should be a mention of the mandated equity component against each MIP. This way investors get a clear picture and can select an MIP depending on their risk appetite.

Else we will have investors going all out to invest in the best performing MIP, not realizing that its risk profile is very different from their own.

Frankly, in our view there are too many rankings for the investor's own good. From the fund's perspective, missing the coveted prize in one ranking is not really cause for concern, there is (or will be) another ranking in which it will most certainly feature.

Open a fund fact-sheet and you will likely find a mention of the various trophies/accolades that have come the fund's way. From the publication/research house's perspective, the rankings is just another way of going one up on its peers with a 'me-too' product. Notice how the investor's interests do not 'rank' too highly in all this!