Where should you invest in 2022? The cues lie in the best performers in 2021. Fortune India devised a two-stage methodology of quantitative and qualitative assessment to identify the top three investment options in 15 categories across mutual funds, insurance and pension funds. Morningstar India was our knowledge partner for mutual funds and SecureNow for life and health insurance. Quantitative work on the data for pension funds was done in-house. For qualitative assessment, the data was placed before a jury to identify the Top 3 in each category. The jury was chaired by S Ravi, former chairman, BSE India & managing partner at Ravi Rajan & Co. Other jury members included: Ashish Shanker, MD & CEO, Motilal Oswal Private Wealth, Joydeep Roy, global health insurance leader, PwC, Vidya Bala, founding partner and head, research & product, PrimeInvestor and Vijay Chandok, MD & CEO, ICICI Securities.

The Process

We considered 10 categories in mutual funds, four in insurance and one in pension funds. Equity mutual funds include Large Cap, Mid Cap, Small Cap and All Cap funds. All Cap funds comprise of Flexi Cap, Multi Cap, ELSS or tax-saving, Focused Equity and Large & Mid Cap Funds. In fixed income, we considered Ultra Short Duration, Short to Medium Duration, Corporate Bond and Medium to Long Duration funds. We looked at the best fund managers in equity and fixed income too. To do that we considered funds with a minimum five-year vintage average and more than ₹1,000 crore in assets under management (AUM) for the last 12 months. For top fund managers, we considered those managing the fund for at least three years, and had two or more eligible funds within the asset class.

In equity funds, 80% weightage was assigned to return while risk got 20%. In debt schemes, risk assumed a weight of 40-50% in line with the belief that investing in equity is to earn inflation-beating returns, while those investing in debt schemes demand safety of capital while earning decent returns. We factored in very short-term performance of six-months for equity funds and debt funds to capture the schemes’ performance in an unfavourable scenario after Covid 2.0. A final score was reached for each eligible scheme in its respective category according to the weights given in the table — Final score formula.

The top scoring schemes were presented to the Jury, which recommended a tie-breaker criteria if Final Weighted Average Scores of Funds were within 0.25 of each other. The fund with the greater MRAR [Morningstar Risk Adjusted Returns] was given a higher rank, provided the difference in value is greater than 0.25. If not, the next criteria was considered. The fund with the lower standard deviation was given the higher rank.

For fund managers, a composite score was ascertained for each person comprising the Weighted Average of the Final Score by each scheme managed by them by the one-year average AUM of the fund. If the Final Asset Weighted Score for managers was within 0.25, an asset weighted average MRAR of eligible funds managed by the managers was used. The manager with a higher asset weighted average MRAR was assigned the higher rank.

Life & Health Insurance: We considered four categories—Best life insurer, Best term plan, Best equity ULIP fund and Best health insurer. For the best life insurer, companies were measured on three parameters — sales quality, claims performance and returns performance. Sales quality included persistency by count; policy complaints and surrenders by value. Persistency was given 25% weightage. In claims, death claims and maturity settlement within 30 days were given equal weight of 12.5%. An additional 10% weight was assigned to the death claim paid within 30 days. Further, annualised returns of participating and non-participating funds were given 10% weight each. FY21 data was used. The data was sourced by SecureNow from public disclosures and IRDAI annual reports.

The term insurance plans and equity ULIP funds from the top 10 insurers were identified for the Best Term Insurance and Best Equity ULIP Fund categories. The cheapest term plans among the term plans of top 10 life insurers were considered as the best.

In Equity ULIP Funds, plans with an AUM over ₹100 crore were considered. A consolidated return was calculated by giving 20% weight to 1-year MRAR and 80% to 3-year MRAR. The funds with the highest score were considered as top performers. Morningstar India provided the MRAR for equity ULIP funds to SecureNow.

For the best health insurer, those with fewer than 5,000 claims were removed. Parameters like policy complaints (15%), claims payment-health only (40%), claims payment within 30 days, health only (20%), incurred loss ratio (15%) and health-specific Ombudsman complaints favouring insurers/total Ombudsman complaints (10%) were considered. Ombudsman information was taken from the FY20 annual report of insurance ombudsman and pertains to FY19. Insurers within an incurred loss ratio of 65-90% were given the highest score.

Pension Funds: Three categories—equity, corporate debt and government securities — were considered under Tier 1 National Pension Scheme. Pension funds with a minimum five years of existence were considered. Returns and 3-year compounded average growth in AUM were assigned a weight of 80% and 20%, respectively. To find out the return score for each pension fund, 7-year return was given the highest weight of 50%, followed by 30% weight to 5-year return and remaining to 3-year return. The top five scorers were the nominees.

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