Mutual Fund Quartile Rankings: Helps You Spot Winners and Avoid Laggards

Quartile ranking is a simple statistical tool that shows how a mutual fund has performed compared with other funds in the same category by dividing them into four performance buckets.

The purpose of quartile ranking is to offer an easy, at-a-glance way to see whether a scheme is a leader, average, or laggard, without going deep into complex ratios or jargon.​

What is Quartile Rankings?

Quartile rankings measure a fund’s performance relative to all other funds in its category, typically based on historical returns over a specific period such as 1 year, 3 years, or 5 years. All funds in a category (for example, large-cap equity or short-duration debt) are listed from best to worst on the chosen parameter (for example, it can be 3-years return, risk metric, or volatility) and then divided into four equal groups of 25% each, called quartiles.​

This method avoids viewing a scheme in isolation and instead places it in its competitive universe, helping investors judge whether the fund is outperforming or underperforming peers. Because quartiles are based on ranking, even small differences in return can shift a scheme from one quartile to another, especially around the boundaries.​

Understanding the four quartiles

●      Top Quartile (Q1): This bucket contains the top 25% of funds in the category on the chosen performance metric, making them the best performers versus peers. A fund in Q1 is generally viewed as a strong performer for that period and may be a candidate for further analysis and long-term holding.​

●      Upper Middle Quartile (Q2): Q2 includes funds ranked in the 25–50% range, which have done better than at least half the category but are not among the top 25%. These schemes are typically considered above-average to average performers and may still be acceptable if they show consistency and fit the investor’s risk profile.​

●      Lower Middle Quartile (Q3): Q3 covers funds placed in the 50–75% band, indicating below-average to average performance relative to peers. Persistent presence in Q3 may signal that the fund is struggling to keep up with the category and might need closer review.​

●      Lower Quartile (Q4): Q4 consists of the bottom 25% of funds, which have delivered the weakest performance in the comparison group. Funds that remain stuck in Q4 over multiple periods are often treated as laggards and may be candidates for exit, subject to taxation and asset-allocation considerations.​

Why Does Quartile Ranking Matters?

Quartile rankings reduce complex performance data into a simple picture, enabling investors to quickly see whether their fund is a leader, middle-of-the-pack, or laggard within its category. Because rankings can be generated for different time periods, they also help track how a scheme’s relative position changes over time, such as from quarter to quarter or year to year.​

A shift from Q3 to Q1 between periods can indicate meaningful improvement in strategy or market positioning, whereas a slide from Q1 to Q4 may warn of deterioration in performance quality. Over longer horizons, consistent presence in the top two quartiles is often seen as a sign of a robust investment process and disciplined fund management, while persistent bottom-quartile positioning can point to structural issues.​

How Investors Can Use Quartile Data

●      Monitor performance trends: By reviewing quartile rankings periodically (for example, every quarter or annually), investors can see whether a fund is sustaining or losing its edge versus peers. A fund that maintains Q1 or Q2 status over multiple periods usually reflects better consistency than one that jumps frequently between Q1 and Q4.​

●      Evaluate fund managers: Consistently strong quartile positions may indicate effective stock selection, asset allocation, and risk management by the fund manager. On the other hand, chronic Q3–Q4 rankings can suggest that the existing strategy or execution is not working well in the prevailing market environment.​

●      Support buy, hold, or exit decisions: Quartile rankings are best used alongside other metrics such as standard deviation, Sharpe ratio, portfolio quality, and costs rather than in isolation. When choosing new schemes or reviewing an existing portfolio, investors can prioritise funds that consistently appear in Q1–Q2 and critically reassess those stuck in Q4, keeping in mind their goals, risk appetite, and investment horizon.​

How to Use Quartile Rankings Effectively

Quartile rankings are category-specific, so comparisons should only be made within the same fund classification, such as comparing one flexi-cap fund with other flexi-cap funds. Rankings are based on past data and cannot guarantee future performance, but they provide a useful lens to judge how well a fund has done relative to competition.​

Used wisely, quartile ranking becomes a simple yet powerful checklist item in mutual fund selection—helping investors filter winners, avoid persistent laggards, and stay better aligned with long-term financial goals.​

  Disclaimer: This article is for informational purposes only and is not investment advice.