Maximum drawdown in mutual funds

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

Maximum drawdown (MDD) is the maximum observed loss from a peak NAV to a subsequent trough NAV, before a new peak is achieved, over a specified period. It represents the worst-case scenario for an investor who happened to invest at the highest point and exited at the lowest point in the measurement window. Maximum drawdown is expressed as a negative percentage and is one of the most intuitive and investor-relevant risk metrics, unlike standard deviation, it directly answers the question: “What is the worst I could have lost?”

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.

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Maximum drawdown in mutual funds

Standard deviation as a mutual fund risk metric