InvestorQ : Which are the mutual fund ratios & can we track them?
Priyanka N made post

Which are the mutual fund ratios & can we track them?

Answer
user profile image
Shivali Sharma answered.
8 months ago


There are several ratios in mutual funds, which can be explained as under:

1. Beta: It is a measure to calculate the volatility of mutual funds against the benchmark. This also helps to understand how much a fund's performance could move up/down.

Beta = (Standard deviation of mutual fund scheme/Standard Deviation of Benchmark)* R-Square

2. Alpha: This is a measure of the mutual fund's performance after the adjustment of the risk.

Alpha = Mutual fund scheme return – (Risk free rate of return+ (beta*(Benchmark return – Risk free rate of return)

3. R - Squared: It is a correlation between mutual fund schemes performance and its benchmark.

R – Squared = (covariance between benchmark and mutual fund scheme/ (Standard deviation of mutual fund scheme* standard deviation of benchmark)) 2

4. Standard Deviation: It measures the volatility of the fund's returns in relation to its average returns.

Variance = (Sum of squared difference between each monthly return and its mean / number of monthly return data)

5. Sharpe Ratio: This ratio helps the investor to tell if a mutual fund delivers the returns with respect to the risk taken by it on comparing the fund with risk-free rate of return.

Sharpe ratio= (Mutual fund returns – Risk free rate of return)/ Standard deviation of mutual fund

Besides the above-mentioned ratios, there are several other ratios that I have not discussed. The answer to the question whether we can track them or not depends upon your knowledge and professionalism. It could be a difficult task to track them as the data involved is vast and generally cannot be done on the basis of theoretical knowledge, hence one needs professional-level knowledge to track all that data.