Standard Deviation on WebNotes

Standard deviation in mutual fund performance

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

Standard deviation measures the volatility of a mutual fund’s returns, indicating the typical deviation of returns from the average. Higher standard deviation = higher volatility = higher uncertainty in outcomes.

Annualised standard deviation

For mutual fund analysis, returns are typically annualised:

Monthly returns are computed and annualised by multiplying by √12.
The annualised standard deviation indicates the typical year-to-year variation.

Typical ranges by fund category

Category	Typical Annual Std Dev
Large-cap equity	18-25%
Mid-cap equity	25-30%
Small-cap equity	30-35%
Aggressive hybrid	12-18%
Conservative hybrid	5-10%
Long duration debt	6-10%
Short duration debt	2-4%
Liquid fund	0.5-1%

Interpretation

One standard deviation rule

Approximately 68% of returns fall within ±1 standard deviation of the mean. For an equity fund with:

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.

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.