Published Jun 18, 2026 4 Min Read

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Introduction

Maximum Drawdown measures the biggest percentage decline an investment experiences from a peak to a trough before it recovers. It helps you understand the downside risk of a mutual fund and can be useful when comparing funds with similar returns.

  • Maximum Drawdown focuses on losses, not gains.
  • A lower Maximum Drawdown generally indicates lower downside volatility.
  • The Maximum Drawdown formula compares the peak value with the lowest value reached after that peak.
  • Maximum Drawdown is expressed as a percentage.
  • It helps you compare funds within the same category.
  • Mutual fund schemes on the Bajaj Broking website can be evaluated using risk measures such as Maximum Drawdown alongside the SEBI-mandated riskometer.

You can start investing through SIP or lumpsum on the Bajaj Broking website, complete KYC as required by SEBI, explore 4,000+ mutual fund schemes, and begin a SIP from Rs. 100 per month.

What is Maximum Drawdown (MDD)?

Maximum Drawdown (MDD) is the largest percentage decline in the value of an investment from its highest point to its lowest point before it recovers. It is a commonly used risk metric in mutual funds and portfolio analysis.

For example, if a fund rises to Rs. 100, falls to Rs. 70, and later recovers, the Maximum Drawdown is based on the decline from Rs. 100 to Rs. 70. In this case, the drawdown is 30%.

Maximum Drawdown helps you understand how much value an investment could lose during a difficult market period. Unlike returns, which show growth potential, MDD highlights downside risk.

MetricWhat it showsWhy it matters
ReturnsGrowth in investment valueMeasures performance
Maximum DrawdownLargest fall from peak to troughMeasures downside risk
SEBI RiskometerRisk level of a schemeHelps assess overall risk

When evaluating a fund, you should consider both returns and risk. The SEBI riskometer classifies schemes as Low, Low to Moderate, Moderate, Moderately High, High, or Very High risk.

What is the Maximum Drawdown formula?

The Maximum Drawdown formula calculates the percentage decline from the highest value reached by an investment to its lowest value before recovery.

Maximum Drawdown (%) = ((Peak Value – Trough Value) ÷ Peak Value) × 100

Where:

  • Peak Value = Highest value reached by the investment
  • Trough Value = Lowest value reached after the peak
  • Result = Percentage decline from the peak

Example formula calculation

ItemValue
Peak ValueRs. 100
Trough ValueRs. 70
DifferenceRs. 30
Maximum Drawdown30%

A higher percentage indicates a larger fall in value. A lower percentage suggests better protection during market declines.

How do you calculate Maximum Drawdown?

You can calculate Maximum Drawdown in a few simple steps. The process helps you identify the largest decline an investment experienced during a specific period.

Step 1: Identify the highest value

Find the highest NAV or portfolio value during the period you are analysing.

Step 2: Find the lowest value after the peak

Identify the lowest value reached after that peak and before the investment recovers.

Step 3: Calculate the difference

Subtract the trough value from the peak value.

Step 4: Divide by the peak value

Divide the difference by the peak value.

Step 5: Convert to percentage

Multiply the result by 100 to get the Maximum Drawdown percentage.

Mutual fund returns are market-linked and past performance does not guarantee future results.

Worked example

StepValue
Peak NAVRs. 120
Lowest NAV after peakRs. 90
DifferenceRs. 30
Calculation30 ÷ 120
Maximum Drawdown25%

This means the fund lost 25% of its value from its highest point before recovering.

How can Maximum Drawdown help you choose a mutual fund?

Maximum Drawdown can help you understand how a fund behaved during market downturns. It gives a clearer picture of risk than returns alone.

When comparing mutual funds, consider the following:

FactorWhat to evaluateWhy it matters
Maximum DrawdownLargest historical declineShows downside risk
ReturnsLong-term performanceIndicates growth potential
RiskometerSEBI risk categoryHelps assess risk level
Investment HorizonYour planned holding periodInfluences suitability
Fund CategoryEquity, debt, hybrid, ELSS, thematicDifferent risk profiles

A fund with slightly lower returns but significantly lower drawdown may suit conservative investors. Aggressive investors may accept larger drawdowns in exchange for higher growth potential.

You can compare equity, debt, hybrid, ELSS, thematic funds, and NFOs on the Bajaj Broking website. The platform offers access to 4,000+ mutual fund schemes and supports both SIP and lumpsum investments.

Conclusion

Maximum Drawdown is an important risk measure that shows the largest loss an investment experienced from a peak to a trough. It helps you understand downside risk and compare mutual funds beyond returns alone.

Before investing, review Maximum Drawdown alongside fund returns, the SEBI riskometer, investment horizon, and fund category. On the Bajaj Broking website, you can explore 4,000+ mutual fund schemes, track investments through Dashboard, Portfolio, Orders, and MF Profile tools, and start investing with SIPs from Rs. 100 per month after completing KYC.

Frequently asked questions

What is the formula for Maximum Drawdown?

The Maximum Drawdown formula is: ((Peak Value – Trough Value) ÷ Peak Value) × 100. It measures the largest percentage decline from the highest value reached by an investment to the lowest value before recovery. When analysing mutual funds on the Bajaj Broking website, this metric can help you compare downside risk across different schemes and categories.

What is a good Maximum Drawdown percentage for a mutual fund?

There is no single ideal Maximum Drawdown percentage because it depends on the fund category and market conditions. Generally, a lower Maximum Drawdown indicates lower downside risk. Equity funds often experience larger drawdowns than debt funds. You should compare drawdown levels among similar funds and also consider the SEBI-mandated riskometer before investing.

How does Maximum Drawdown affect my SIP returns?

Maximum Drawdown does not directly determine your SIP returns, but it shows how much a fund has fallen during difficult periods. If you continue your SIP during market declines, you may accumulate more units at lower NAVs. On the Bajaj Broking website, you can start SIP investments from Rs. 100 per month and track your holdings through available portfolio tools.

Can Maximum Drawdown predict future losses?

No. Maximum Drawdown is based on historical performance and cannot predict future losses. It helps you understand how a fund reacted during past market declines. Since mutual fund returns are market-linked, future performance may differ. You should use Maximum Drawdown together with returns, fund objectives, riskometer ratings, and your investment horizon when selecting a scheme.

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