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ICICI FMPs rated AAAf – What does that mean?

Business Standard: 35 FMPs of ICICI Prudential AMC rated AAAf by Crisil

Thirty-five Fixed Maturity Plans (FMP) of ICICI Prudential AMC, one of the leading mutual fund company, have been rated AAAf by Crisil.

ICICI Prudential is the only AMC with largest number of AAAf rated FMPs by Crisil in its stable. The ratings indicate that ICICI Prudential FMPs’ portfolio holdings provide very strong protection against losses from credit default.

The full list of the FMPs Crisil has rated are noted here. And they note:

The rating indicates that the FMPs’ portfolios will provide ‘very strong’ protection against losses arising from credit defaults. CRISIL’s rating is not an opinion on IPAMCL’s willingness or ability to make timely payments to investors, or on the stability of the funds’ net asset values (NAVs), which could vary with market developments.

CRISIL’s assessment of a bond fund’s credit quality is based on the creditworthiness of the fund’s portfolio. CRISIL has developed a credit quality matrix to assess the aggregate credit quality of a fund’s underlying portfolio. The matrix is a set of credit factors and credit scores derived scientifically from the default and transition rates of CRISIL’s long-term ratings. The credit factors reflect the expected default behaviour of the respective securities in the portfolio, and the expected deterioration in their credit quality.

These are dangerous words, first of all. AAA ratings by themselves seem to mean little nowadays, because it’s obvious rating agencies have been clueless in rating products that cannot be modelled right. You never know when a Bear Stearns type announcement will land up(“[investors] will get little if any money back after “unprecedented declines” in the value of AAA rated securities used to bet on subprime mortgages.”)

Now all ratings are suspect, and they should be.

Also, I thought I’d check their fact sheet. One fund rated AAA was the ICICI Prudential Series 36 18 Months Plan B. And it’s portfolio, as of end October 08, is this:

Doesn’t inspire the “AAAf” confidence in me, honestly. There’s like TWO products out there rated AAA, and they add up to less than 15% of the portfolio. Now I don’t know if the portfolio has changed substantially since Oct 31 – usually they shouldn’t change much, but you never know – so they might have actually shifted to more “AAA” rated products.

This doesn’t quite mean that ICICI as a fund house is suspect – I own units of a fund now and am very happy with it (their Gilt fund) and has returned some 13% in two months, not counting today. And they are being very open with their statements – revealing full portfolios and even details of pass through securities. Very commendable.

But the ratings – those I would take with a pinch of salt. Always, always check the underlying portfolio rather than the rating on a scheme itself.

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