What are Mutual Fund Capture Ratios

Understand the various ratios, their role in evaluating fund performance, and how investors can utilise this crucial metric to make informed decisions.
What are Mutual Fund Capture Ratios
3 min
28 February 2024

Mutual funds offer a simple way for people to invest their money and potentially earn returns. But with so many mutual funds available, how do you choose the right one?

One tool that can help you in this process is called the capture ratio. Understanding capture ratio can help you evaluate how well a mutual fund performs in different market conditions. In this article, we will explore the concept of capture ratio, its types, and how you can use it to select the right mutual fund for your investment needs.

What is the Capture Ratio?

Capture ratio is a measure used by investors to assess how well a mutual fund performs compared to the overall market. It helps investors understand how a mutual fund behaves in both rising and falling markets. In simple terms, capture ratio indicates the fund's ability to capture the positive movements (upside) and negative movements (downside) of the market.

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Types of Capture Ratios

There are two main types of capture ratios:

  • Up-market or Upside capture ratio
  • Down-market capture ratio.

What is Up-market or Upside Capture Ratio?

The up-market capture ratio assesses how well an investment performs compared to a benchmark index during positive market conditions. A mutual fund with an up-market capture ratio exceeding 100 indicates it has outperformed the benchmark. For instance, a ratio of 108 means the fund has surpassed the index by 8%.

This ratio helps investors evaluate the reliability of fund managers and the products managed by them, especially those aiming for relative returns and active fund management instead of absolute returns.

What is Down-market or Downside Capture Ratio?

The down-market or downside capture ratio is the opposite of the up-market ratio. It measures how well an investment performs compared to a benchmark index during negative market conditions. If a mutual fund has a down-market ratio below 100, it means it performed better than the index. For example, a ratio of 92 indicates the investment lost only 92% as much as the benchmark.

Investors often consider the down-market capture ratio along with the up-market ratio. Sometimes, mutual funds with an up-market ratio below 100 still have a favourable down-market ratio.

Formula and calculation of Capture Ratio

The formulas for both the up-market and down-market capture ratios are expressed as follows:

Up-market or Upside capture ratio = (Mutual fund returns during a upside market)/(Benchmark index returns) X 100


An up-market capture ratio exceeding 100 is desirable because it signifies that the mutual fund outperformed the benchmark index during the chosen period.

For example, if the stock market rises by 10% during a specific period and the fund increases by 15%, the capture ratio would be 1.5.

Down-market or Downside capture ratio = (Mutual fund returns during a downside market)/(Benchmark index returns) X 100


A down-market capture ratio below 100 can be advantageous as it indicates that the mutual fund lost less than the benchmark index during the selected period.

Note: Before investing, you can also get an estimate of the future value of your mutual fund investments by using the Bajaj Finserv SIP Calculator, eventually helping you to make informed decisions.

How to use Capture Ratios for mutual funds analysis

When deciding which mutual fund to invest in, capture ratios can be incredibly useful. The upside capture ratio reflects gains, while the downside capture ratio indicates losses experienced by the funds, aiding in mutual fund selection.

The main principle is to opt for a fund with greater gains, reflected by an upside capture ratio above 100, and fewer losses, denoted by a downside capture ratio below 100. In simpler terms, choose an investment with the highest upside ratio and the lowest downside ratio. It's essential to establish a goal for your fund and evaluate its performance accordingly.

For instance, Atul aimed for his fund to outperform the benchmark and achieve more gains. His fund achieved an up-market capture ratio of 140, signifying a 40% increase, thus meeting his objective. Conversely, Neha aimed for her fund to minimise losses. However, her fund couldn't achieve a down-market capture ratio below 100, remaining stagnant at 100. This indicates Neha's fund fell short of its goal.

Conclusion

Understanding capture ratio can help investors make informed decisions when selecting mutual funds. By analysing both up-market and down-market capture ratios, investors can gain insights into how a mutual fund performs in different market conditions.

However, it's essential to remember that capture ratios are just one of the many tools available for evaluating mutual funds. Investors should consider other factors such as risk tolerance, investment objectives, and fund expenses before making investment decisions. By combining these factors with capture ratios, investors can build a well-rounded investment portfolio that aligns with their financial goals and objectives.

Analyse 1000+ mutual funds and start investing today through the Bajaj Finserv Mutual Funds platform. Utilise tools such as the SIP calculator and lumpsum calculator to enhance your decision-making process.