How-to risk-adjusted return Sharpe ratio

How to compute risk-adjusted return for a mutual fund

From WebNotes, a public knowledge base. Last updated 19 May 2026. Reading time ~4 min.

Procedure

Gather NAV historyDaily / monthly NAV for 3-5 year period. AMC site / AMFI common database.
Compute daily/monthly returnsDaily return = (NAV_today - NAV_yesterday) / NAV_yesterday. Annualised standard deviation = volatility.
Compute Sharpe ratioSharpe = (scheme annualised return - risk-free rate) / standard deviation. Risk-free = 10-year G-Sec yield (~7%).
Compute Sortino ratioSimilar to Sharpe but uses downside deviation (only negative-return days). Penalises downside, not all volatility.
Compute Calmar ratioCalmar = annualised return / max drawdown. Higher = better drawdown-adjusted.
Compute alpha and beta (regression vs benchmark)Beta = correlation x (scheme vol / benchmark vol). Alpha = scheme return minus (rf + beta x (benchmark - rf)).
Compare across candidate schemesHigher Sharpe / Sortino / Calmar = better. Positive alpha = beat the benchmark on risk-adjusted basis.
Use factsheet pre-computed if availableMany AMC factsheets disclose Sharpe / Sortino / Calmar / beta. Use those if you don’t compute manually.

Risk-adjusted return beats raw return as a fund comparison metric. Two funds with 12% CAGR but different volatilities are not equivalent; risk-adjusted captures the difference.

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Step-by-step procedure

See the procedure infobox above for the eight steps.

Key metric interpretation

Metric	Higher = better?	Use
Sharpe	Yes	Per unit total volatility
Sortino	Yes	Per unit downside volatility
Calmar	Yes	Per unit max drawdown
Alpha	Positive = beats benchmark	Manager skill
Beta	Depends on goal	Lower than 1 = less volatile than benchmark

External references

References

SEBI (Mutual Funds) Regulations, 1996.
AMFI Best Practice Guidelines.
CFA Institute educational materials.

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The WebNotes Editorial Team covers Indian capital markets, payments infrastructure and retail investor procedures. Every article is fact-checked against primary sources, principally SEBI circulars and master directions, NPCI specifications and the official support documentation published by the intermediary in question. Drafts go through a second-pair-of-eyes review and a separate compliance read before publication, and revisions are tracked against the SEBI and NPCI rule changes referenced in the methodology section.

Last reviewed: 19 May 2026
Conflicts of interest: WebNotes is independent. No relationship with any broker, registrar or bank named in this article.

Key metrics	Sharpe, Sortino, Calmar, alpha, beta
Source	Factsheet (often pre-computed); manually from NAV history
Use	Compare schemes; higher = better risk-reward
Period	Use 3-5 year typically