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How to Track & Evaluate Mutual Fund Performance
In summary
Mutual fund ratios are quantitative measures that help you look beyond past returns and understand a scheme’s risk, volatility, and performance.
- Alpha compares a fund’s risk-adjusted performance with its benchmark.
- Beta shows how sensitive a fund is to movements in its benchmark or market.
- Standard deviation measures how widely a fund’s returns vary around their average.
- Sharpe and Treynor ratios assess returns in relation to different types of risk.
- Information Ratio measures excess return relative to the volatility of excess returns.
No single ratio gives a complete picture. Use these measures alongside the scheme’s objective, portfolio, benchmark, costs, Riskometer, and your investment horizon.
What are mutual fund ratios?
Mutual fund ratios are quantitative measures used to assess different aspects of a scheme’s performance and risk. They can help you compare similar funds and understand whether returns have come with relatively higher or lower risk.
For example, two equity funds may have similar one-year returns, but their standard deviation, beta, or Sharpe ratio may differ. Looking at these measures can give you more context before comparing schemes.
AMFI notes that mutual fund factsheets commonly disclose measures such as standard deviation, beta, Sharpe ratio, and portfolio turnover for equity funds, along with other scheme information.
Which mutual fund ratios should you know?
The following ratios and measures answer different questions, so you should not treat one as a standalone measure of fund quality.
Alpha
Alpha indicates how a fund has performed relative to its benchmark after accounting for the assumptions in the alpha methodology used. A positive value can indicate outperformance, while a negative value can indicate underperformance.
A commonly used form is Jensen’s alpha:
Jensen’s alpha = Fund return − Risk-free rate − Beta × (Market return − Risk-free rate)
For example, if a fund earns 12% and its benchmark earns 16%, you cannot automatically call its alpha -4%. Alpha depends on the calculation methodology and risk adjustment.
Standard deviation
Standard deviation measures how much a fund’s returns have varied around their average return over a period.
A higher standard deviation indicates greater historical volatility, while a lower value indicates smaller fluctuations. It is useful when comparing funds with similar objectives, but it does not predict future volatility.
Beta
Beta measures a fund’s sensitivity to movements in its benchmark.
A beta of 1 indicates movement broadly in line with the benchmark. A beta above 1 indicates greater sensitivity, while a beta below 1 indicates lower sensitivity.
Beta = Covariance of fund returns with benchmark returns ÷ Variance of benchmark returns
Beta measures systematic risk and should be interpreted with the benchmark and period used for calculation.
See systematic risk for more context.
Treynor ratio
The Treynor ratio measures excess return relative to systematic risk, using beta as the risk measure.
Treynor ratio = (Fund return − Risk-free rate) ÷ Beta
It can be useful when comparing funds where market-related risk is the main focus.
Sharpe ratio
The Sharpe ratio measures excess return relative to total volatility, using standard deviation as the risk measure.
Sharpe ratio = (Fund return − Risk-free rate) ÷ Standard deviation
A higher Sharpe ratio indicates more excess return per unit of total volatility for the period and methodology used.
Information Ratio
The Information Ratio (IR) compares a portfolio’s excess return over its benchmark with the volatility of that excess return.
IR = Excess return ÷ Standard deviation of excess return
SEBI’s Master Circular for Mutual Funds dated March 20, 2026, requires mutual funds and AMCs to disclose IR for equity schemes’ portfolios alongside performance disclosures.
Sortino ratio
The Sortino ratio focuses on downside deviation rather than total volatility. This makes it different from the Sharpe ratio, which considers overall volatility.
It can provide additional context when you are particularly concerned about downside fluctuations, but it should still be read alongside other measures.
R-squared
R-squared measures how closely a fund’s returns are related to those of its benchmark. It is expressed as a percentage.
A higher R-squared generally indicates a closer historical relationship with the benchmark. This can be particularly relevant when assessing how closely a passive fund tracks its benchmark.
Why are mutual fund ratios important?
Ratios help you assess a fund from several angles rather than relying only on past returns. They can show volatility, market sensitivity, benchmark-relative performance, and risk-adjusted returns.
For example, consider Arjun, who is comparing two equity funds with similar five-year returns. Instead of selecting a fund solely because its return is marginally higher, he can compare its standard deviation, beta, Sharpe ratio, alpha, expense ratio, portfolio, and benchmark. This gives him more context for understanding how those returns were generated.
A mutual fund factsheet can provide many of these figures. AMFI identifies standard deviation, beta, Sharpe ratio, and other quantitative measures among the information available in scheme factsheets.
You can also explore mutual fund analytics.
How should you use mutual fund ratios?
Use ratios together rather than treating one figure as a decision rule. Each measure captures a different aspect of a scheme.
Before comparing funds, check the scheme’s objective, benchmark, investment horizon, portfolio, Riskometer, and costs. Then use ratios to add context to the comparison.
You can also review the role of the fund manager, mutual fund portfolio, and mutual fund units.
What other factors should you check?
Ratios are useful, but they do not replace basic scheme analysis. Check these factors before making a comparison.
- Investment objective: Check whether the scheme’s strategy matches your goal.
- Portfolio: Review the securities, sectors, asset allocation, and concentration.
- Riskometer: Consider the scheme’s stated risk level alongside quantitative measures.
- Expense ratio: Costs reduce the return available to investors over time.
- Benchmark: Compare a scheme with the benchmark it is designed to track or outperform.
AMFI states that a fund factsheet also provides information such as the scheme objective, fund manager, AUM, NAV, benchmark, expense ratio, portfolio, and performance.
Conclusion
Mutual fund ratios help you look beyond headline returns. Alpha, beta, standard deviation, Sharpe, Treynor, Information Ratio, Sortino, and R-squared each provide a different view of performance or risk.
Use them together with the scheme’s objective, benchmark, portfolio, costs, and Riskometer. No single ratio can establish whether a mutual fund is suitable for you.
Last reviewed: September 2026
Mutual funds are subject to market risk. Please read the scheme-related documents carefully before investing.
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Frequently asked questions
Understanding mutual fund ratios
Comparing risk measures
Which mutual fund ratio should I use first?
There is no single ratio that works for every comparison. Start with the scheme’s objective and benchmark, then use standard deviation, beta, alpha, Sharpe, or Treynor depending on the aspect you want to assess. For equity schemes, Information Ratio can add another view of benchmark-relative performance. Compare like-for-like schemes over the same period.
What is the 15-15-30 rule in mutual funds?
The 15-15-30 rule is an illustrative SIP calculation in which you invest Rs. 15,000 each month for 30 years and assume a 15% annual return. The resulting corpus is about Rs. 10.5 crore under a standard monthly SIP calculation. The 15% return is only an assumption, not a guaranteed mutual fund return.
What is the difference between Sharpe and Treynor ratios?
Both measure risk-adjusted returns, but they use different measures of risk. Sharpe uses standard deviation, which captures total volatility, while Treynor uses beta, which captures systematic market risk. This means Sharpe can provide a broader volatility perspective, whereas Treynor focuses specifically on market-related risk.
Is a higher Sharpe ratio always better?
A higher Sharpe ratio indicates more excess return per unit of total volatility for the period measured, but you should not use it alone to choose a fund. Check whether the funds have similar objectives, benchmarks, time periods, and market conditions. Also consider the portfolio, costs, Riskometer, and your investment horizon.
Disclaimer
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Disclaimer
Mutual Fund SIP calculator may provide potential investors an approximate estimate on the maturity amount of the monthly SIP, purely based on mathematical calculation of the projected annual return rate selected by investor. However, such calculation does not factor the actual performance by the Asset Management Company (AMC) and should not be treated as any advice or assurance about the actual return of investment. Mutual Funds do not have a fixed rate of return and it is not possible to predict the rate of return. Please note that the SIP calculator are for illustrations only and do not represent actual returns which may vary depending on various factors including but not limited to actual performance, expense ratio, taxation, exit load (if any), etc.