We often see that a fund is rated as five-star. Is a five-star fund worth buying? How is the five-star fund evaluated?

Fund rating refers to the collection of relevant information by fund institutions, and the ranking of funds according to the expectation of returns and risks through qualitative and quantitative analysis according to certain inspection standards. Then the fund is evaluated by star rating, which is generally 1 to 5 stars, and 5 stars is the highest level.

Fund rating agencies need qualified rating agencies, which are authoritative and credible. There are seven institutions that can engage in fund rating in China, namely Morningstar Information, Tianxiang Investment, Ji 'an Jinxin, Galaxy Securities, China Merchants Securities, Shanghai Securities and Haitong Securities. It is normal that the same fund may get slightly different ratings from different fund rating agencies.

Generally speaking, the rating of funds will go through several steps:

First, the funds are classified, and the risk and return characteristics of different funds are very different. First, the funds should be classified according to the types of funds, that is, the investment scope of funds.

then rate the fund's income. The evaluation of the fund's income is generally based on the historical income of the fund, and the performance of the fund accounts for the highest proportion in the evaluation of the fund.

Then rate the risk-adjusted income of the fund, and consider the risk of the fund, such as volatility. Through the evaluation of risk, the rate of return of the fund is adjusted.

finally, the funds are graded according to five stars. Take Morningstar as an example, the top 1% funds are rated as five stars, the next 22.5% funds are rated as four stars, the next 35% funds are rated as three stars, the next 22.5% funds are rated as two stars and the last 1% funds are rated as one star. So it will also lead to a very small gap between the two funds, but one is rated as 5 stars and the other is rated as 4 stars.