Active Management on WebNotes

Information ratio in mutual fund performance

Mon, 18 May 2026 00:00:00 +0000

The Information ratio measures the active return (scheme return minus benchmark return) per unit of tracking error (volatility of active return). It indicates how consistently a mutual fund generates excess return versus its benchmark.

Formula

Information ratio = (Scheme return - Benchmark return) / Tracking error

Where:

Active return: Scheme return - Benchmark return.
Tracking error: Standard deviation of active return.

Interpretation

Information Ratio	Interpretation
> 0.75	Excellent active management
0.50 to 0.75	Good
0.25 to 0.50	Marginal
< 0.25	Poor active management

Information ratios above 0.5 are typically considered good for actively-managed equity mutual funds.

Information ratio in mutual funds

Tue, 12 May 2026 00:00:00 +0000

The information ratio (IR) is a risk-adjusted performance measure that quantifies a mutual fund manager’s ability to generate consistent excess returns (active returns) above a benchmark, per unit of active risk taken (tracking error). It combines the concepts of alpha and tracking error into a single efficiency measure, rewarding managers who generate high excess returns consistently rather than those who occasionally produce large excess returns with high variability.

The information ratio is particularly relevant in the Indian context as it distinguishes skilled active managers from those who appear to generate alpha simply by taking concentrated sector or stock bets.

Portfolio turnover ratio in mutual funds

Tue, 12 May 2026 00:00:00 +0000

Portfolio turnover ratio (PTR) is a measure of how actively a mutual fund trades its portfolio over a given year, expressed as a percentage of the fund’s average net assets. A portfolio turnover ratio of 100 per cent indicates the entire portfolio was replaced (bought and sold) once during the year; a ratio of 200 per cent means the average holding was replaced twice. Low turnover indicates a buy-and-hold philosophy; high turnover indicates frequent repositioning.