Understanding Quartile Rankings: A simple way to evaluate Mutual Fund performance
When it comes to investing in mutual funds, one of the most common questions investors ask is: “How do I know if my fund is performing well compared to others?” This is where quartile ranking becomes a useful and easy-to-understand tool. Instead of diving into complex ratios or technical analysis, quartile rankings may offer a straightforward way to assess a fund’s performance relative to its peers within the same category.
What are Quartile Rankings?
Quartile rankings measure how well a mutual fund has performed when compared with all other funds in the same category. Rather than looking at the fund in isolation, quartile ranking provides context by placing all funds side-by-side and sorting them based on performance.
Think of it as dividing the category into four performance buckets. Each bucket represents 25 per cent of the funds, ranked from best to worst. These are known as quartiles.
Understanding the Four Quartiles
To make quartile ranking meaningful, all funds in a category are grouped into four sets of 25 per cent each, arranged from the highest performing to the lowest performing.
- Top Quartile (Q1)
This includes the top 25 per cent of funds in the category.
If a fund is in Q1, it means it is among the best performers compared to its peers. Investors often view Q1 funds as strong performers over the evaluated period. - Upper Middle Quartile (Q2)
This quartile includes the next 25 per cent of funds (25 per cent-50 per cent) – those performing better than half the category but not in the top bracket. - Lower Middle Quartile (Q3)
This includes the next 25 per cent of funds (50 per cent-75 per cent), representing mid-to-lower ranked schemes. - Lower Quartile (Q4)
This final quartile includes the bottom 25 per cent of funds.
Why Quartile Ranking matters?
Quartile rankings simplify comparison. They allow investors to quickly understand whether a fund is performing better or worse than others without having to interpret detailed financial data. It is especially useful when reviewing performance across different time periods—such as the current quarter versus the last quarter.
For example, if a fund has moved from Q3 in the last quarter to Q1 in the current quarter, it signals improvement. Movement across quartiles can therefore help investors track consistency, volatility, and performance trends.
How can investors use this information?
- Monitor performance trends: Regularly checking quartile positioning helps you stay updated on how your fund is performing relative to peers.
- Evaluate fund managers: Consistently strong rankings may reflect robust fund management practices.
- Support decision-making: Quartile rankings can complement other indicators when choosing new funds or reviewing existing ones.
Conclusion
Quartile ranking is a simple yet powerful method to understand mutual fund performance within a category. By breaking down funds into four clear segments, it helps investors make informed and confident decisions. Whether you are evaluating a new fund or reviewing your current portfolio, quartile rankings provide clarity and comparison at a glance—helping you stay aligned with your investment goals.
An Investor Education & Awareness Initiative by HSBC Mutual Fund
Visit https://grp.hsbc/KYC w.r.t. one-time Know Your Customer (KYC) process, complaints redressal process including SEBI SCORES (https://scores.sebi.gov.in/scores-home). Investors should only deal with Registered Mutual Funds, to be verified on SEBI website under Intermediaries/Market Infrastructure Institutions (https://www.sebi.gov.in/intermediaries.html). Investors may refer to the section on ‘Investor Education’ on the website of HSBC Mutual Fund for the details on all ‘Investor Education and Awareness Initiatives’ undertaken by HSBC Mutual Fund
Document intended for distribution in Indian jurisdiction only and not for outside India or to NRIs. HSBC MF will not be liable for any breach if accessed by anyone outside India. For more details, refer website.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.