Mutual Fund Performance on WebNotes

Beta in mutual funds

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

Beta (\(\beta\)) is a measure of a mutual fund’s systematic risk, its sensitivity to movements in its benchmark index relative to the benchmark’s own movement. A beta of 1.0 means the fund historically moves in perfect proportion with its benchmark. A beta above 1.0 indicates an amplified response (the fund falls more in a downturn and rises more in an upturn), while a beta below 1.0 indicates a dampened response. Beta of zero would imply no correlation with the market at all.

Downside capture ratio in mutual funds

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

The downside capture ratio measures how much of a benchmark index’s negative return a mutual fund captures when the benchmark posts a loss. It is computed as the ratio of the fund’s average return during periods when the benchmark is negative, to the benchmark’s average return during those same periods, expressed as a percentage. A ratio below 100 means the fund falls less than the benchmark in down periods, an indicator of downside protection.

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.

R-squared in mutual funds

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

R-squared (\(R^2\)), or the coefficient of determination, measures the proportion of a mutual fund’s return variance that is explained by variance in its benchmark index. It ranges from 0 to 1 (or 0 to 100 per cent). An R-squared of 1.0 (100 per cent) means all return variation is explained by the benchmark; an R-squared of 0 means the fund’s returns have no statistical relationship with the benchmark.

R-squared is an essential companion to beta because beta is only a reliable predictor of fund behaviour when R-squared is high. A fund with a calculated beta of 1.20 but an R-squared of 0.40 cannot be relied upon to behave in line with that beta, much of its movement is independent of the benchmark.

Rolling returns vs trailing returns in mutual funds

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

Rolling returns and trailing returns are two methods of computing mutual fund performance over a given time horizon (say, 3 years or 5 years). Both express the fund’s return as a compounded annual growth rate (CAGR) over the measurement period. The fundamental difference is: a trailing return is a single snapshot measured from a specific past date to today, while rolling returns compute that same CAGR for every possible starting date in the historical record, producing a distribution of returns rather than a single number.

Sharpe ratio in mutual funds

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

The Sharpe ratio is a measure of risk-adjusted return that quantifies how much excess return (return above the risk-free rate) a mutual fund has delivered per unit of total risk, where total risk is measured by the standard deviation of the fund’s returns. Named after Nobel laureate William F. Sharpe who introduced it in 1966, it remains the most widely cited single performance statistic in the Indian mutual fund industry.

Sortino ratio in mutual funds

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

The Sortino ratio is a risk-adjusted performance measure that refines the Sharpe ratio by substituting total standard deviation with downside deviation, a measure computed only from returns that fall below a minimum acceptable return (MAR), typically the risk-free rate or zero. The intuition is straightforward: investors are harmed by downside volatility but benefit from upside volatility, so penalising both equally (as the Sharpe ratio does) misrepresents the true cost of risk.

Standard deviation as a mutual fund risk metric

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

Standard deviation in the context of mutual funds is the annualised measure of how much a fund’s periodic returns deviate from its average return. It captures total risk, both upside and downside volatility, making it a symmetric risk measure. It is the denominator in the Sharpe ratio and appears in every AMC’s monthly factsheet as a standard AMFI-mandated risk disclosure.

A higher standard deviation indicates a more volatile fund whose returns fluctuate widely around the mean; a lower standard deviation indicates steadier, more predictable returns.

Treynor ratio in mutual funds

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

The Treynor ratio (also called the reward-to-volatility ratio or Treynor measure) is a risk-adjusted performance measure that divides a fund’s excess return (return above the risk-free rate) by its beta , a measure of systematic market risk, rather than by total standard deviation as in the Sharpe ratio . Developed by Jack Treynor in 1965, it is based on the Capital Asset Pricing Model (CAPM) framework and is appropriate when the mutual fund is evaluated as a component within a larger, well-diversified portfolio.

Upside capture ratio in mutual funds

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

The upside capture ratio measures how much of a benchmark index’s positive return a mutual fund captures when the benchmark delivers a gain. It is the counterpart of the downside capture ratio and is computed using only the months (or periods) in which the benchmark posted a positive return. A ratio above 100 means the fund rose more than the benchmark during up markets, an indicator of upside participation, while a ratio below 100 indicates the fund lagged the benchmark even in favourable conditions.