``In the case of fixed income securities, such as bonds, debentures and company FDs, there is a mechanism of credit rating to understand the risk profile of each of the companies. However, to understand the risk profile of income schemes, there is no single benchmark, unless one goes through the entire portfolio,'' says the newsletter. While some income schemes retain the option of investing a small percentage of the corpus in equities, others have the leeway to invest in all types of instruments, thereby jeopardising the creditquality of the portfolio.

``An investor must understand where the scheme will invest and, therefore, what kind of risk exists for the fund. It is here that rating of the mutual fund helps the investor select an investment avenue to suit his appetite for risk and return,'' it adds.

Crisil, which has developed a mechanism for rating income schemes, assigns rating to only those debt funds with no equity exposure. Once it vets the offer document, an investor can be sure that the fund will not invest in equities or rated instruments not mentioned in the offer document.

Besides the convenience to the discerning investor, the monitoring of the portfolio by an independent rating agency on a regular basis should enhance investor confidence. ``If there are downgrades in the portfolio, the fund manager has to replace those securities,'' says the AMC.

With the investment philosophy of the fund outlined, an investor can estimate returns from the fund given his knowledge of the underlying assets.

In addition tothe mutual fund, the agency also evaluates the credit risk for each of the underlying asset.